7/5/24 – Increase in negative economic surprises lifts bond prices further

Today caps off a holiday shortened week in the US that saw yields continue to fall across the curve.   As we have been writing for quite some time, US economic data has been mixed and this week we saw a decided shift in surprises to the downside.  Although, the headline Non-farm payroll number beat softened expectations – registering +206,000 for the month of June compared to the consensus of +190,000.  The two-month downward revision subtracted 111,000 previously reported jobs, and private payrolls underwhelmed.  The US unemployment rate now stands at 4.1% – up 0.6% from the January 2023 low of 3.4%.

The 2-year Treasury note yield fell 12bps in June to close the month at 4.75%.  As of this morning, the 2-year yield has fallen an additional 12bps month to date – trading around 4.63%.  There are now 3 rate cuts priced into the Fed Fund futures curve by the January 2025 FOMC meeting – with approximately 80% chance of a cut at the September 18th FOMC meeting.

Next week the US will release CPI and PPI data, followed on Friday by the University of Michigan consumer surveys for July.  The Bond market will be looking for CPI to continue the trend of softer economic readings, thereby supporting the move in bond prices.

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