May 2. Nonfarm Payroll Day
–30 year bond contract (USM) pushed to new highs in front of today’s employment data, while tens and stocks are near new highs. Bond yield fell over 5 bps to 340.5. Ten year yield fell another 4 bps to 260.5, and 2/10 treasury spread made a new recent low at 220. Red/gold pack spread down 5.25 to new low just under 253. Like the ten year yield, red/gold has ranged between around 250 to just over 300 since last June, and is now testing lower levels.
–NFP expected 218k with average hourly earnings +0.2. There was heavy put buying yesterday, but given price action, it feels as if there is a large short base that will use any downtick to square up.
–In a year where many have been expecting global growth to accelerate, the move to lower yields has been painful. I had seen an article a few days ago which suggested that large private pensions were becoming closer to fully funded, causing rotation out of riskier stocks into longer dated fixed income…but stocks aren’t particularly weak. Another article yesterday on BBG (Liquidity Trap Hitting AAA Bonds…) said that even EU sovereign bonds were becoming less liquid due to regulatory concerns, which perhaps spurs a move to US at the margin. There is also a BBG article today: Yellen’s Fed Resigned to Diminished Growth Expectations. “No longer are they saying growth must accelerate from the 2 percent to 2.5 percent pace it has generally averaged since the recession ended. Instead, they are stressing the importance of preventing the expansion from faltering.” So maybe it’s just that…a world resigned to lower growth and regional conflicts.
–Note: It was announced yesterday that Yellen will appear in front of a House Committee next Wednesday morning.
