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POSITIVE ECONOMIC DATA = HIGHER RATES?

By Rom Badilla, CFA – Bond Trader and BondSquawker:

Friday’s economic data turned out to be good as data releases suggest that the U.S. economy is improving as the nation added jobs in March, the fastest pace since 2007.  The Bureau of Labor Statistics reported that Non-Farm Payrolls increased by 167,000.  While the increase came in below economists’ surveys of an increase of 184,000, the readings in the two previous months were revised upward from their initial release by a total of 56,000 to makeup for the expectations shortfall.  Similarly, the Private Sector added 123,000 more jobs in March while in the prior month, there was an increase of 8,000.  Furthermore, the Unemployment Rate stayed at 9.7 percent, meeting economists’ expectations.  While it is far from an improvement by that measure, signs are encouraging as people are re-entering the workforce and are starting to look for employment opportunities.

With many market participants at home enjoying the holiday and signs that the deepest recession since the 1930s is past us, look for Monday’s action in the Treasury market for continuing trends in rates.   While the stage is set for higher rates coupled with next week’s Treasury auction, yields in particular on the 10-year could face some short term technical resistance in the 4.00 percent range.  However, with Friday’s job report now acting as a strong fundamental tailwind, I expect 10-year rates to blow past it and move toward the 4.25 percent range in the coming weeks.

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