|Day's Range||1.8160 - 1.9060|
|52 Week Range||1.4290 - 2.9000|
U.S. stocks were higher and Treasury yields declined Wednesday following Federal Reserve’s final monetary policy decision of the year. In this, central bank officials decided to keep key interest rates at current levels and telegraphed rates would remain on hold through next year.
(Bloomberg Opinion) -- One of the most popular talking points in markets lately has been that the U.S. jobs report, long seen as a crucial indicator of the broader health of the economy, is actually not as important as it’s made out to be. Instead, it’s all about inflation, or central banks providing liquidity, or the latest news about striking a trade deal.For one day at least, it was all about jobs data again for bond traders.In what could only be described as blockbuster numbers, payrolls surged by 266,000, the most since January and beating all estimates in a Bloomberg survey calling for a 180,000 gain, according to a Labor Department report Friday. On top of that, the prior month’s advance was revised upward by 28,000, to 156,000. Average hourly earnings rose 3.1% from a year ago, topping expectations for 3% growth. The unemployment rate dipped to 3.5%, rather than sticking at 3.6% as analysts anticipated. Benchmark 10-year Treasury yields soared almost 8 basis points in a flash, climbing to 1.86%, the highest since mid-November. It was the biggest instant reaction to payrolls data the market has experienced all year. The only somewhat comparable move was on July 5, when yields ended the trading session 10 basis points higher, after a relatively small increase at first. But even then, when job gains trounced estimates by 64,000, the previous month’s figures were revised lower, the unemployment rate unexpectedly increased and wage growth fell short. It wasn’t across-the-board strength like these November numbers.The data was so good, in fact, that futures traders have finally started to believe that the Federal Reserve will truly hold interest rates steady next year. Fed funds futures are now only pricing in 23 basis points of easing for all of 2020, or less than one typical quarter-point cut. These numbers should calm any fears of an impending recession, and with it another yield-curve inversion.Given that the hurdle for the central bank to raise interest rates again is so high, traders will probably hesitate to whittle those wagers down much further. But it should simplify Fed Chair Jerome Powell’s message to investors at his Dec. 11 press conference: Monetary policy is in a good place and the central bank will be patient from here to see if inflation picks up. And the economy? It’s definitely in a good place — the latest payrolls report proves it.To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Stocks jumped Friday after the Labor Department’s November jobs report handily topped expectations. Treasury yields rose and gold prices sharply declined, as the latest sign of strength in the U.S. economy spurred risk-on trades.
The protracted trade war between China and the United States and a deteriorating global growth outlook have left investors nervous that the longest expansion in American history is at risk of ending. Recession fears were sparked earlier this year when the yield curve inverted - a key indicator of a pending downturn. An inverted yield curve occurs when yields on short-term bonds are higher than those on long-term bonds, a sign investors are so worried about the future that they are willing to hold long-term bonds, which are usually viewed as a safer alternative to stocks and other investments, even when the payouts are low.
Be prepared for a two-sided trade shortly after the release of the headline payrolls number because some traders will play the hard number and others will try to factor in the “real” number with the GM workers taken out of the equation.
There’s uncertainty over the trade deal at the start of the new week, but this is being offset by China’s solid manufacturing reports. Furthermore, if financial market traders saw a major problem developing, they’d be buying Treasurys, thereby lowering interest rates and making gold a more attractive investment.
Mohamed El-Erian, Allianz's chief economic adviser, says there will be 'a mini deal that will see a truce through next year.'
Each of the three major U.S. stock indices hit fresh record highs Tuesday after China signaled trade negotiators were pacing toward a deal, and a batch of retail earnings came in mostly stronger than expected.
(Bloomberg Opinion) -- I don’t envy Wall Street strategists this time of year. Correctly predicting the future is obviously difficult, and yet they’re expected to lay out the path forward for each asset class during the next 12 months and recommend trades to profit from those views. To make things even more challenging, bank analysts are under increased pressure to prove their worth by making flashy forecasts that, in theory, will attract more media coverage and win more clients. That can be tough to do if their base-case is relatively boring.This all serves as background for how it’s come to the point that Goldman Sachs Group Inc. is forecasting a “baby bear market” in bonds in 2020. If that sounds like a borderline oxymoron, it’s because the strategists appear to be walking a fine line between being provocative (I’m writing about it, aren’t I?) while also calling for a relatively small move in the $16.5 trillion U.S. Treasury market. The group’s forecast is for the benchmark 10-year Treasury yield to “rebound to 2.25%, mostly skewed toward the second half of 2020.” The 10-year U.S. inflation breakeven rate may rise too, they say, though “levels beyond 2.0% look tough to achieve.”To be clear, those predictions seem perfectly rational. They’re certainly in line with the market’s general stance that the Federal Reserve is firmly done with interest-rate moves after it’s “mid-cycle adjustment” that cut the fed funds rate 75 basis points. An increase in 10-year yields by about 50 basis points would suggest that the central bank was successful is staving off an economic slowdown with its three rate cuts. The benchmark 10-year Treasury yield was 2.25% as recently as May.But couching that forecast in the language of a “bear market,” even a “baby” one, runs the risk of misleading investors on what such an increase in Treasury yields would mean. As a reminder, Bill Gross declared “bond bear market confirmed” in January 2018 after the 10-year yield surged past 2.5%, citing broken 25-year trend lines. Jeffrey Gundlach, DoubleLine Capital’s chief investment officer, said last year to watch for the 30-year yield to close above 3.22% twice to signal the end of the bull market. It stayed above that level for two months, from early October to early December.And yet, when the dust settled on 2018, the Bloomberg Barclays U.S. Treasury Index still posted a gain of 0.9%. The 10-year Treasury note itself was flat on the year, with the increase in yield (and drop in price) countered by interest payments. As I wrote last New Year’s Eve, the bond bear market never really came.If you subscribe to the more traditional definition of a bear market — a decline of 20% or more over a sustained period — it wasn’t even a close call. Similarly, the “baby bear market” that Goldman envisions won’t be in the ballpark, either.The bank’s strategists noted that in both mid-cycle adjustment episodes of the 1990s, 10-year Treasury yields moved substantially higher in the year after the final rate cut, though the slope of the yield curve from two to 10 years barely budged, meaning the maturities moved in parallel. They see that as less likely this time because virtually no one expects the Fed to raise rates anytime soon, keeping the front end of the curve locked in place.But for the sake of argument, suppose shorter-term yields also rise by 50 basis points by the end of 2020. Even then, two-year Treasuries would still post a positive return of 1.23%. Five-year Treasuries would be flat. The 10-year benchmark would have a negative 1.9% total return. And based on the composition of the Bloomberg Barclays U.S. Treasury Index, this sort of scenario would spell a loss of about 1%.Maybe you consider a 1% overall loss a baby bear market. It would be the first annual decline since 2013, after all. What I see is a Treasury market that’s up about 10% in 2019 and probably due for a pullback. The index has had a negative total return in just four years dating back to 1973. In three of those four instances, it posted a double-digit gain during the previous year, as it might do in 2019. In other words, it’s not uncommon for bonds to take a breather after a relentless rally, particularly after a year like this one, when 30-year yields fell to an unprecedented low.It’s possible that as more Wall Street forecasts come in, other strategists will make the case for a more sizable and prolonged bond sell-off. But I’m not so sure, judging from early reports like this one from NatWest Markets strategists led by John Briggs:“Just about every year, we lay out a list of both upside and downside risks to the rate outlook. This year, we are struggling to come up with strong upside risks. Moreover, even if upside rate risks were realized ... we think the magnitude of the sell-off would be relatively muted. Thus the amount yields may rise in that equilibrium is less than the potential amount yields can fall in any of our downside risk scenarios, of which there are many. In sum, in a best case scenario we think yields have limited room to rise but in the more severe downside risk scenario, yields can fall substantially.”For what it’s worth, NatWest is hardly a perma-bull on Treasuries. As for Goldman, it has tended to be more hawkish and have more optimistic U.S. growth forecasts than its peers. For instance, as of early December 2018, it was still calling for four Fed rate increases this year. In a Nov. 20 report, strategists led by Jan Hatzius predicted real U.S. gross domestic product growth of 2.3% and 2.4% in 2020 and 2021, respectively, compared with the consensus estimates of 1.8% and 1.9%.In any case, this isn’t the backdrop for a reckoning in Treasuries. Not even a “baby” one. To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.