Treasuries Yields Dip, as US Data Slightlty Disappoints

U.S. markets posted gains on Friday, particularly the Treasuries, after a mixed employment report for October wrong-footed traders. Bonds outperformed with yields plunging sharply lower as the 214k rise in payrolls, a 0.1% increase in average hourly earnings, and slower trajectory on hours worked disappointed expectations for something more.

The Treasury market had set itself up for a robust headline given the strength in various other employment indicators, including the ADP private payroll report, the jobless claims report, and ISM components of the manufacturing report. Ironically, the fixed income market overlooked the upward revisions to back-month payroll figures and drop in the unemployment rate to 5.8%, the lowest since mid-2008.

The benchmark 10-year yield tested 2.40% Friday morning, having climbed almost 20 basis points in two weeks on data expectations and supply which included a heavy corporate calendar and the advent of the November refunding. Following the release and through Friday’s session, the 10-year note unwound almost half of that surge to end the week at 2.29%. Short covering on the data disappointment and dovish Fed-speak fueled the rally. Meanwhile, Wall Street eked out another record high with the S&P 500 closing at 2032, for a 9.9% year over year gain.

The data calendar is thin with just one major release, October retail sales, and it is scheduled for Friday. Retail sales are expected to be flat, both overall and for the ex-auto figure, after respective declines in September of 0.3% and 0.2%. The markets are already starting to look at sales as a harbinger of the holiday season, and damp readings won’t provide much joy. Of course weakness in gas station sales has been a major contributor, and is likely to play role in limiting the upside in the October report. However, it could also work to consumers’ benefit as it keeps more cash in their wallets.

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