There are some that are “shocked” the yield curve is steepening as dramatically as it has following two successive rate cuts. One pundit stated this steepening is as “predictable as it is inexplicable.”
Some ardently believed that if the FOMC lowered interest rates, longer dated Treasuries would follow.
The steepening in the curve commenced in earnest following the Supreme Court tariff hearings that did not go well for the Administration. A combination of the return of tariffs collected and the potential stimulative growth effects from the lack of tariffs was the initial catalyst for this steepening move.
The steepening move went on steroids following the almost universal acceptance that Keven Hassett—a monetary dove who the market believes may succumb to Presidential pressure—will be the next Fed Chairman.
All the above, tariff relief that may stimulate inflationary growth, an inflation rate that is already 50% higher than the accepted speed limit, amplified by stealth QE and the gargantuan demand for funds by both the government tech companies to fund AI spending plans, and a potential politically charged Chairman, are awakening the bond vigilantes.
Government officials can manipulate (ok attempt to control) longer dated interest rates for only so long. The question at hand will the yield curve steepen to the same degree that it was inverted?
There is anxiety that inflation will remain at current levels as the Fed has not indicated (short of some wish casting in its summary of economic projections) that it is committed to bringing inflation down further. There is even less commitment in Congress to reduce the debt.
Today is the release of November’s unemployment data. How will the data influence the bond market? Will the data be dismissed as being to noisy, the result of the shutdown?
Non-farm and private sector payrolls are expected to rise by 50k, average hourly earnings are forecasted to rise by 03%, a 34.2 average weekly work week, a 4.5% unemployment rate and a 62.4% labor participation rate.
Yesterday, equities reversed an early day advance ahead of today’s jobs report and the continued decline in Bitcoin.
Last night the foreign markets were down. London was down 0.54%, Paris down 0.15% and Frankfurt down 0.44%. China was down 1.11%, Japan down 1.56% and Hang Seng down 1.54%.
Futures are flat following a noisy jobs report that offered something for both bulls and bears. The 10-year is up 2/32 to yield 4.16%.
