May 7. Employment report confirms sluggish economy
–Employment data was weaker than expected and markets reflected disappointment. (From Liscio Report: “Almost 70% of job gains came from bars and restaurants, temp firms, and retail, which do not seem the strongest foundations for long-term growth.”)
–The curve made new recent lows with 2/10 at 163 and red/gold euro$ pack spread at 158 (down 6 on the day). In early December last year 2/10 got below 150 for a couple days, a target area for later this month. All back month euro$ calendar spreads made new lows. Crude oil broke below $100/bbl, down 6.5% in the past few sessions. SPX fell 1.6%. Implied volatility in treasuries sank to new lows. There simply isn’t much prospect for a move to higher rates over at least the next quarter, and perhaps for the rest of the year. Those who had hoped to revisit the higher yields of mid-March are likely to be relentlessly ground down into submission. At the end of Friday, a colleague mentioned that EDU14 should continue to rally. I too think rates edge lower, but I responded that I have a hard time paying 9912 (88 bp yield) for a contract that far out. And that’s the core problem, it SEEMS like it’s too high, but odds are that it rolls higher yet. Which isn’t so bad if you don’t have a position, but is gut wrenching on a daily basis when you’re short, at least in my personal experience. I suppose this week’s treasury auctions could hold the market down, but 1.88 for US tens still seems pretty good compared to 1.58 bunds.
–A line from David Rosenberg also captures a big macro theme: “The ‘baby boomers’ are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks.” I recall the mantra before 2000, when everyone repeated ad nauseum that baby boomers HAD to put their money in stocks for retirement. Well now it’s 15 years later. And they can’t retire.
–One other interesting footnote for those who think “Tax the rich” is the answer: Americans renounced their citizenship in record numbers in 2011. http://rt.com/usa/news/us-citizenship-tax-denounce-521/ The absolute number seems small, only 1788, but I don’t think they’re part of the 99%. As the article notes FROM AN IRS REPORT: For some US taxpayers abroad, the tax requirements are so confusing and the compliance burden so great that they give up their US citizenship.
