Bond yields rose again this past week, mostly in response to better-than-expected economic news and positive gains in the stock market. Both the Dow and S&P were up over 2.2% for the week, oil was back above $36 per barrel, and the employment report was very good. Job growth for the month of February was a solid 242,000 new hires and both of the previous two months were revised upward by almost 30,000. The Labor Department said the unemployment rate remained at 4.9% while the participation rate was up .2% to 62.9%. However, many economists think the real employment situation is not so rosy. They continue to point to the labor participation rate, which measures the portion of eligible Americans who are counted among the “employed” in calculating the unemployment number, and it is believed that the more accurate number might be closer to 10% rather than 5%.
Regardless, the financial markets are focused on the Fed’s rate intent after Friday’s good employment report. So, will we get a 25 bps hike anytime soon? Looking at an average yield of .96% for the 2 and 3 year UST notes, I would argue that a June hike of 25 bps is more likely than not. The BIG question as we head into the summer months has a lot to do with the rest of the world. While all is better in the U.S., Europe, in particular, is about to experience negative growth. The ECB is projected to pump more money into their economy due to uncertainty about global growth, volatile markets, and geopolitical risks. It’s never easy when charting a forward course during times of market uncertainty. However, being patient at the moment could be a nice yield reward as we begin replacing shorter duration bonds as they mature.