Winter Weather Blues

Bonds are down, jobless claims are up, and the 10-Year Treasury yield could hinge on February's jobs reports.

Bond prices started the day slightly lower, so after three down days, it looks like bonds could be in for a fourth day of losses. Yesterday’s loss was minor; but I expected bonds to rally after the stock market sell-off yesterday. Bond market analysts also expected bond prices to rise yesterday on short-covering from hedges. I haven’t heard from analysts on why that didn’t happen.

Weekly jobless claims rose to 320,000 versus the expectation they would decline from 313,000 to 300,000. Weather remains the major factor in claims topping 300,000 for the second week in a row, but we can’t be too complacent. Remember, the energy sector is undergoing some degree of restructuring and retail has been slow since Christmas. Traders did not react to this number.

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The yield on the U.S. 10-Year Treasury note was 2.13% this morning. The yield is creeping closer to the 2.15% that some chartists have identified as important as in it’s important to bond bulls that the yield doesn’t close over that level.

Whether yields break out to a higher realm might swing on tomorrow’s nonfarm payroll report. Economists expect to see 230,000 new jobs in February. Although the ADP research institute’s private payroll estimate is in line with such a number, I still would not be surprised to see a weather-related lower number.

Certainly as important as the job count, if not more so, is the wage component. Economists are looking for wages to rise by the normal amount of 0.2% after January’s unusually large gain of 0.5%. Any significant variance from 0.2% will cause traders to react. The monthly jobs report has not mattered much to the markets in several months. Perhaps tomorrow’s report will be different.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

March 5, 2015

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