Good Morning on this best day of the week Wednesday,
Bonds opened very strong and have since pulled back. No news today, that starts tomorrow with CPI (inflation) data. That said, bonds continue to have a bid to them with the 10-yr at 1.50%. There is a 10-yr Treasury auction in a little bit (10am) that could push or pull the markets depending on the outcome. We are back at the top end of the channel for both Treasuries and mortgage bonds. If we break out, we will see better pricing; if we do not have the momentum to make a break, we will slump back toward the middle/lower end of the trading range. It is best to play defense in here and lock. If CPI comes out weak tomorrow, bonds will improve but CPI is a backwards looking indicator, its for May and it could come in stronger despite inflation calming down now. I don’t know it’s worth the gamble.
Great piece from Bloomberg today on how our country has lost its grip on employment. The graph is great if you are a nerd/bean counter as I am (although the Beveridge curve is not something I see myself talking about, at least not unless it is a beverage curve), but the crux of it is in the first two sentences below. Higher job openings and people quitting at a record pace. Supply chains, service industries, the economy at large, needs people to get off unemployment and back to work..
Yesterday we got the latest JOLTS report, the government survey that looks at other labor market indicators, such as total job openings and the rate at which employees are quitting. The news is pretty straightforward. Job openings continue to surge and workers are quitting at a record pace.
One indicator that economists like to look at is the so-called Beveridge Curve, which plots the unemployment rate against the rate of job openings. Historically there’s been a somewhat stable relationship between the two. Job openings go up and the unemployment rate goes down, as you would expect. But as with everything else weird about this recovery, that’s breaking down. As you can see here on the chart from the BLS, job openings are soaring (see the highlighted part) while the unemployment rate holds steady.
In a note to clients this morning, Tim Duy of SGH Macro Advisors notes that this new weird shape of the curve holds true even if you look at alternative measures of non-employment besides the standard U-3 measure: “it appears that labor market frictions not related to unemployment insurance appear to have been increasing. That’s not exactly great news if you are expecting the end of enhanced UI benefits will dramatically ease labor market frictions.”
Obviously there are a lot of people who assume that the labor market will go “back to normal” once the UI expansions expire, childcare becomes easier, the pandemic starts to fade and so on. But at the moment, things are still looking pretty unusual.
Please remain safe and healthy, make today great!
