Prior Week Summary
The market was surprised by the strength of the June payrolls report on Friday, which detailed that the economy added 287k jobs last month following a relatively weak report for the May time frame. The report from the Labor Department outlined that the unemployment rate ticked up slightly to 4.9% while the labor force participation rate increased by 0.1% to 62.7% in June. Global Sovereign debt yields continued their downward trend last week while equities reached all-time highs as the divergence between technical factors and fundamental valuations persists as market participants expect ongoing easy monetary policy around the globe for the foreseeable future.
As of this writing, an estimated $13 trillion of the global bond market is trading with negative yields, compared to $11 trillion prior to the U.K. referendum. The U.S. 10yr closed at 1.366% on Friday, marking the lowest closing price ever for the note, while the 2s/10s spread narrowed to 82 basis points.
The FOMC released minutes from the June meeting on Tuesday, which outlined the committee’s concerns over the unexpectedly weak May jobs report and the Brexit decision as reasons for pause in hiking overnight lending rates.
The Look Forward
A relatively busy week for economic releases on deck, as updated data is expected on inflation, retail sales, consumer confidence, and industrial production. There is also a wide array of Fed speaking engagements this week on the state of the economy and financial markets that will likely provide an opportunity for Fed members to refine their forward communication strategy. A decent amount of duration coming to the market this week in the U.S. as the Treasury has scheduled auctions for the 3-yr and 10-yr notes, and the 30-yr bond.