Bond Market Update

Data Recon

• The June Employment Situation Report featured a decline in the unemployment rate to 4.1% from 4.2% and a relatively solid 147,000 increase in nonfarm payrolls. That's not to say there weren't points of weakness in the report. There were, namely the participation rate coming down, the percentage of employees unemployed for 27 weeks or more going up, and avg. weekly hours dipping to 34.2 from 34.3.
  • The key takeaway, though, is that it wasn't weak enough to convince the market that a rate cut at the July FOMC meeting is squarely on the table. On the contrary, that is looking more like a remote possibility, with the fed funds futures market pricing in only a 4.7% probability of a 25 basis-point cut at the meeting versus 23.8% a day ago, according to the CME FedWatch Tool.
• Initial jobless claims for the week ending June 28 decreased by 4,000 to 233,000 (Briefing.com consensus: 240,000), while continuing jobless claims for the week ending June 21 were unchanged at 1.964 million.
  • The key takeaway from the report is the same as before: businesses are not busily laying off workers, but it has become more challenging for workers who have been laid off to find a new job.
• The trade deficit widened to $71.5 billion in May (Briefing.com consensus: -$70.5 billion) from an upwardly revised $60.3 billion (from -$61.6 billion) in April. That widening was the result of exports being $11.6 billion less than April exports and imports being $0.3 billion less than April imports.
  • The key takeaway from the report is that it will factor in as a negative for the net exports contribution to Q2 GDP.
• Yield check:
  • 2-yr: +8 bps to 3.87%
  • 3-yr: +7 bps to 3.84%
  • 5-yr: +6 bps to 3.93%
  • 10-yr: +4 bps to 4.33%
  • 30-yr: +2 bps to 4.84%