What Happened Last Week?
Bonds Fail to Capitalize on Super Weak Jobs Report
Nonfarm Payrolls came in at 266k compared to a median forecast of 978k. That’s one of the biggest misses ever and it was no surprise to see bonds rally significantly in response. It was definitely a surprise to see how quickly and completely the rally was erased in subsequent hours. There are several potential reasons for this. Traders could simply be skeptical that the headline NFP number speaks to the labor market reality, or they could fear the Treasury issuance implication (i.e., weaker jobs = more stimulus = more Treasury issuance = higher rates). Other considerations include next week’s looming auction cycle and good, old-fashioned profit taking after a steadily bullish week for bonds, to name a few.
What‘s on the Agenda for this Week?
The three areas that have the greatest ability to impact backend pricing this week are: (1) Inflation Nation, (2) Treasury Dump and (3) Retail Sales.
(1) Inflation Nation: There will be two big inflation data points this week with CPI on Tuesday and PPI on Wednesday. While this is not the Fed’s primary inflationary gauge, it still can have a big impact on bond yields.
(2) Treasury Dump: There is a large amount of long-term debt hitting the marketplace this week. Wednesday’s 30-year Treasury bond auction is the most important, but Tuesday’s 10-year Treasury Note auction will also be very key to watch.
(3) Retail Sales: After March’s big spike due to the helicopter money from the stimulus checks, how will Retail Sales fare during the same period that only saw 266K Non Farm Payroll job adds?
On Deck for Tomorrow
JOLTS, NFIB Business Optimism, 3-year note auction.