Bonds rallied out of the gate after the jobs report came out this morning. Perhaps it was the fact that 187k isn’t much higher than the 170k forecast, or the 0.3% increase in unemployment. Bonds proceeded to promptly change their minds, quickly selling off and instantly erasing the last 2 days of modest gains.
Perhaps it was the fact that 187k is more than high enough to meet the Fed’s expectations for the pace of labor market softening or that most of the unemployment uptick is explained away by labor force participation.
Moreover, perhaps bonds are looking beyond the jobs report, not to other data, but to the fact that it’s the Friday before Labor Day weekend in addition to being NFP day AND the 1st trading day of a new month. Add 5bps of completely random volatility potential to 10yr yields for each of those three factors… no exaggeration.
Notably, all of the morning’s ups and downs have coincided with moves in stocks. There are two types of correlation between stocks and bonds: the kind most people think is normal where stock prices and bond yields move together, and the kind we’re seeing today where both sides of the market are gaining/losing together.
Is there significance here? Not really. It emphasizes the possibility that the market was trading the data’s implications for Fed policy (because the Fed trade tends to create this Rorshach effect in the chart). 2yr yields (more closely linked to Fed rate expectations) tell a similar story.
Some market watchers think the bounce in short term rates was driven by comments from Fed’s Mester. That’s a possibility, but it’s hard to separate from the 9:30am NYSE open due to the timing of the newswires (which start around 9:45am versus a short-end lift-off that started around 9:35am).
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