(Bloomberg) – It looks like it will take a little longer for the $ 22 trillion treasury market to come alive again.
Ten-year yields barely budged this week after mixed jobs data – disappointing wage growth coupled with faster-than-expected wage increases – lowered expectations the Federal Reserve will rush to cut its asset purchases. The jobs numbers marked the end of a potentially important stretch that also featured a long-awaited speech by Fed Chairman Jerome Powell, who also did little to influence returns. As bond market veterans including Bill Gross have sounded the alarm about the risk of surging yields, the spread of the delta variant of the coronavirus is holding back the Fed in its plan to reduce debt purchases. The result is that the market defied doomsday forecasts and stayed within a narrow range.
It has been six months since 10-year rates have posted a weekly move well above 10 basis points, and volatility measures are plummeting. Short volatility bets have emerged this week on Treasury options, targeting 10-year yields to stay between 1.05% and 1.6% through the end of November.
“The Treasury market will remain in this sort of lull,” said Bill Herrmann, founder and managing partner of investment firm Wilshire Phoenix LLC. “Labor data points to delta fears, all of which may turn out to be just fears, but we can only trust the data presented to us. It seems very likely that the Fed will be handcuffed against normalization policy until the delta is contained. “
Friday was shaping up to be a potential judgment day for bond traders if a robust jobs figure were to trigger bets on a more hawkish stance from the Fed in the next policymakers’ decision on September 22. But the addition of 235,000 jobs last month was well below expectations, even as average hourly earnings rose twice as much as the median estimate.
The report is almost certain to push the Fed to delay consideration of a decision to cut asset purchases until at least its November meeting, economists say. Ten-year yields rose on Friday to 1.33%, still up slightly for the week, as the yield curve steepened.
The list of Treasury auctions next week and the trend for yields to rise in early September also helped to steepen the curve, according to TD Securities strategists. However, the gap between the debt at 5 and 30 years has remained within a range of a quarter point since mid-June.
“For the bond market, this will likely be an ongoing range trade,” said Chris Ahrens, strategist at Stifel Nicolaus & Co. “There hasn’t been enough data on inflation for yields are moving out of range on the upside, nor enough evidence that the labor market is so weak we can go out on the downside. ”
What to watch
The economic calendar: Sep 8: applications for MBA mortgages; JOLTS jobs; Beige Fed Book; consumer credit Sep. 9: Unemployment claims; Consumer comfort LangerSept. 10: IPP; wholesale stocks / commercial salesThe Fed Calendar: Sep 8: John Williams of the New York Fed; Beige book; Robert Kaplan of the Dallas Fed, Sep 9: Mary Daly of the San Francisco Fed; Charles Evans of the Chicago Fed; Governor Michelle Bowman; Williams, Kaplan, Neel Kashkari of the Minneapolis Fed and Eric Rosengren of the Boston Fed at a virtual event on Racism and the Economy Sep. 10: Cleveland Fed’s Loretta Mester Auction Schedule: Sep 7: 13-, 26-. invoices at 52 weeks; CMB 21 days; Grades at 3 years Sept. 8: grades at 10 Sept. 9: 30-year bonds
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