Yesterday’s price action was…unintuitive to say the least. Given the limited amount of meaningful data and clear risk event that today’s employment report poses, markets should have been fairly quiet with perhaps a little position squaring to keep things interesting. Instead, Treasuries enjoyed a stout rally while risk assets traded materially lower. The move in equities was largely a sympathy trade with cryptocurrencies which cratered following the collapse of one of the major crypto lending firms, but also a response to warnings out of several regional banks that higher rates could be leading to loan losses down the road. In that context, the longer end of the Treasury curve reverted to its role of safe haven and benefited from a “flight to quality” move out of risk assets. Things were more interesting at the shorter end of the curve where yields fell as much as 20 basis points, again with little clear impetus. Ultimately rates moved off the recent high extremes and back towards the middle of the recent range, highlighting the importance of today’s payrolls data. Mortgage-backed securities outperformed Treasury counterparts, though the average 30yr rate remains stubbornly above 7%.
The Treasury rally carried over into the overnight hours and yields are currently framed lower by another 7 to 10 basis points. With Powell having reintroduced the possibility of a 50 basis point move during his Congressional testimony and the ultimate decision resting on the data, the stakes today are quite high. Look for some volatility around the 8:30 release. Let’s see what we get and I will be back with an update once the dust settles. TGIF!
H
