The Market Report

Morning Commentary – 10/05/2022

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Daily Market Report

Yields continued to fall yesterday, though the rate of descent was tame by Monday’s standard.  On a micro level, the rally was warranted as the market responded to a much weaker than expected Job Openings Labor Turnover Survey.  Historically this has been a peripheral number that few people paid much attention to.  However, following the most recent FOMC meeting, Fed Chair Jay Powell mentioned the importance of the JOLTS number in assessing the relative tightness of the labor market.  With heightened scrutiny, the headline number of job openings missed by over 1 million versus expectations while the back month was revised lower as well.  While this should be encouraging to the Fed—noting as they often have about the tightness of the labor market—job openings in aggregate likely remain higher than they are comfortable with. 

In the bigger picture, I remain a little skeptical of the durability of the recent rally.  Certainly some of it has been technical in nature as bonds reversed from deeply oversold territory.  However, a certain euphoria seems to have captured some market participants, largely in response to recent dovish pivots from central bankers abroad.  Our own Fed, though, has been extremely consistent in telegraphing its intentions—higher rates for longer, despite the short term implications for economic growth.  There was a saying—or perhaps a warning—among investors during the many years of QE that you don’t fight the Fed.  In other words, if the Fed said they were going to stimulate the economy by getting rates low, then you shouldn’t take the other side of that trade.  I suggest this applies just as equally to QT.

Overnight, sellers in Treasuries emerged and yields are currently framed 3.5 to 6.5 basis points higher across the curve.  Several key data releases are scheduled for today, including another preview of Friday’s employment report with ADP out at 8:15ET.  For now, expect rate sheet pricing to be a bit worse all else equal.  Make it a great day!

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