Displaying items by tag: Treasuries

Following the better than expected March jobs report showing a gain of 303,000 jobs, Treasury yields moved higher across the curve. The 10-year yield initially rose 14 basis points to a new 2024 high of 4.43% before backing off a bit. Overall, the jobs report reduces the urgency of the Federal Reserve to cut rates given the labor market’s resilience.

Going into the report, consensus expectations were for an increase of 200,000 jobs, which would be a softening from the 270,000 jobs added in February. It adds to the data showing inflation moving sideways rather than lower over the past couple of months. 

Yields also rose on Thursday following comments from Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, questioning the likelihood of rate cuts if inflation continues to linger above 2%. As a result, the odds of the Fed not cutting rates at the May and June meetings have increased. 

Some other positives from the report were the unemployment rate declining to 3.8%, despite an increase in the labor force participation rate to 62.7%. Average hourly wages increased by 0.3% on a monthly basis and by 4.1% annually. Both figures were in line with expectations. Job gains were strong across the board, with the biggest contributors being healthcare, government, leisure and hospitality, and construction. 

Finsum: Treasury yields moved higher following a stronger than expected March jobs report. Overall, the report led to a decrease in the odds of a rate cut at upcoming Fed meetings.

In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.

Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

Bond yields modestly rose following the February consumer price index (CPI) report which came in slightly hotter than expected. Overall, it confirms the status quo of the Fed continuing to hold rates ‘higher for longer’. Yields on the 10-year Treasury rose by 5.1 basis points to close at 4.16%, while the 2-Year note yield was up 5 basis points to close at 4.58%. 

The report showed that the CPI rose by 0.4% on a monthly basis and 3.2% annually. Economists were looking for a 0.4% monthly increase and 3.1% annual. While the headline figure was mostly in-line with expectations, Core CPI was hotter than expected at 3.8% vs 3.6% and 0.4% vs 0.3%. The largest contributors were energy which was up 2.6% and shelter at 0.4% which comprised 60% of the gain.

Based on recent comments by Chair Powell and other FOMC members, the Fed is unlikely to begin cutting unless inflation resumes dropping or there are signs of the labor market starting to crack. Current probabilities indicate that the Federal Reserve is likely to hold rates steady at the upcoming FOMC meeting, especially with no major economic data expected that could shift their thinking. 

Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short-end of the curve.

The Bureau of Labor Statistics reported that the US added 275,000 jobs in February which was slightly higher than expectations. However, the report indicated some softening in the labor market as job gains in January and December were revised lower by a collective 167,000, and the unemployment rate inched higher to 3.9%. 

It resulted in bonds moving higher as odds increased that the Fed would cut rates in June. Additionally, the number of hikes expected in 2024 also rose from 3 to 4. Most strength was concentrated on the short-end, which is more sensitive to Fed policy as yields on the 2-Year Treasury note declined by 10 basis points. There was much less movement on the long-end as the 10-year Treasury yield was lower by 3 basis points. Earlier this week, bonds also caught a bid as Chair Powell’s testimony to Congress was interpreted as being dovish. 

Overall, the jobs report perpetuates the status quo in terms of the Fed remaining data-dependent, while the path of the economy and inflation remain ambiguous. On one hand, wages and the labor market have defied skeptics who were anticipating a downturn. But there has been acute weakness in areas like manufacturing and services which have historically coincided with a weakening economy. 

Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short end of the curve.

US Treasuries continue to move lower as hopes for a pivot in Fed policy are eroding. From the start of the year, the yield on the 10-year has climbed from 3.9% to above 4.3% to reach their highest levels since November. In total, it has retraced nearly half of the rally that began in October of last year. 

Over this period, the number of rate cuts expected in 2024 has declined from 6 to 3 as has the timing. Primarily, this is due to the economy remaining strong as evidenced by the labor market and inflation that has proven to be more entrenched than expected. All in all, the narrative has certainly changed as some now believe the Fed may actually hike rates further especially as there are indications that the steady decline in inflation has ended. 

Minutes from the last FOMC meeting also showed that committee members are concerned about the risk of inflation re-igniting if it begins to cut too soon. Overall, it remains ‘data-dependent’. However, all the recent data has undermined the case for immediate or aggressive cuts. According to Rich Familetti, CIO of US fixed income at SLC Management, the current Fed stance "is going to make it very hard for rates to fall much further from here… The pain trade is at higher rates and we will likely experience that."

Finsum: Treasuries continued their losing streak as higher interest rates have weighed on the entire fixed income complex. The market is now expecting 3 cuts in 2024 down from 6 at the start of the year.