Market Commentary – 10/7/16

After touching a high of 1.75% this week, the 10-year US Treasury yield retreated in response to the closely watched employment report, which came in under expectations. There were 156,000 new jobs created, which was below the 176,000 expected. The unemployment rate nudged up to 5.00% from 4.90%. Some positives in the report related to the increase in the Labor Force Participation Rate (LFPR) and a small increase in wages.

With employment being one of the two mandates of Federal Reserve (the other mandate being inflation), a closer look at the LFPR illustrates one reason the Fed has been slow to raise interest rates. Currently, there are 94 million people out of the labor force. This is a huge number and represents those who are either no longer working such as retirees, and/or those who have given up on full-time employment.

However, given the “OK” employment report, the financial experts are saying there is a more than 60% chance of a rate hike of .25% by the end of the year.

At the moment, we are carefully watching the 10-year Treasury yield. If we see yields hovering just above 1.75%, we could see rates drift higher. Therefore, we remain agnostic on where interest rates may trend and we can foresee that rates may go either higher or lower.