Bonds breathed a sigh of relief after an intense week of economic reporting. The Federal Open Market Committee left short-term interest rates intact, but a .25% point increase in the overnight lending rate is all but a given after the Fed’s next policy meeting in September. Friday morning’s July unemployment report was strong with unemployment dipping below 4%. Total unemployment dropped to 7.5% and the May and June employment numbers were revised higher by 59,000 jobs. Wage inflation remains in check, which definitely gave bonds some breathing room from surging higher after the report was released.
Further pressuring bonds is the desire by central bankers to start dialing back the ultra-accommodative monetary policies we have all become so accustomed to. The U.K., the Czech Republic, and India all raised short-term lending rates as the fear of quickening inflation becomes more of a concern ten years out of the 2008 financial crisis.
Domestically, our own 10-year Treasury note touched over 3.00% mid-week for the first time in several weeks. While trade frictions remain a real potential threat to ongoing global growth for the time being, the markets have shrugged off these fears and focused on U.S. growth, strong corporate earnings, and business confidence, which all support higher interest rates.
While much lower interest rates in Japan and Europe are providing a cap for now on how high our domestic rates may rise, we still are of the opinion that interest rates remain very low by historical standards and therefore we continue to advise locking-in interest rates.