U.S. government debt yields rose this week in response to ongoing positive economic data, all-time highs for equities, and nascent signs of inflation from today’s job report. While the September Jobs Report headline was that job creation fell by 33,000 jobs, the assumption is that the jobs numbers were highly impacted by the two major hurricanes that hit the U.S. in September. We fully expect to see the jobs numbers quickly rebound in the coming months.
Within the Jobs Report, the experts homed in on the hourly earnings which surged by 0.5% versus the 0.2% expected. Hourly earnings are up 2.9% year over year. In addition, the Unemployment Rate fell to its lowest level in 16 years to 4.2%, while total unemployment, a.k.a. the U6 number, fell to 8.3% from 8.6% and down from 9.3% in September 2016.
As we have written previously, should the Federal Reserve’s belief in inflation prove transitory, the 10-year Treasury could easily approach 3.000%. Further complicating matters is the Federal Reserve’s intention to begin unwinding its enormous balance sheet, which may very well bid up mortgage and U.S. government debt. Given that the 10-year Treasury is still trading under 2.400%, we remain biased toward locking in interest rates.