ETFs
Bond ETFs Ignore Slowing Jobs Market
ETF Investment Tools
Expectations for a Fed rate cut rose after Friday’s jobs report showed a slowdown in the labor market.
Pricing of federal funds futures implies that there is a 73% probability that the Fed will cut interest rates at its September meeting.
On Friday, the government reported that nonfarm payrolls rose by 206,000 in June, slightly better than the 190,000 expected.
However, revisions to the figures for the previous two months showed that 111,000 fewer jobs were created in April and May than initially reported.
At the same time, the unemployment rate increased from 4% to 4.1%, its highest level since November 2021.
Overall, the data suggest that the labor market is relatively strong, but slowly easing. The unemployment rate is up seven-tenths of a percent from its 2023 low, and various labor market indicators show that it is becoming increasingly difficult for people to find jobs.
So far, markets have not reacted strongly to the possibility that the first rate cut of the cycle will come in two months.
Learn more: These 6 Stock ETFs Tell the Market’s Story in the First Half of the Year
The stock market is hovering near all-time highs and the bond market is stuck in a narrow trading range.
Fed Rate Cut?
Investors appear to be betting on a soft landing, a “goldliloopsy” scenario, where the economy slows, prompting the Fed to cut rates, but not by much.
This could keep the stock market rally intact, while preventing a broader bull market in bonds.
The yield on the 10-year Treasury bond was last trading at 4.28%, about 100 basis points below the federal funds rate.
etf.com: AGG Three-Month Performance
It would likely take signs of a more pronounced economic slowdown for these yields to fall significantly below 4%.
The bond market has also been trying to price in the mixed election results lately, with some deficit and inflation concerns putting some upward pressure on the lower end of the curve.
Permanent link | © Copyright 2024 etf.com. All rights reserved