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Treasury Yields Rally Against Comments from Fed Officials

Miguel A. Rodriguez
Miguel A. Rodriguez
08 August 2023

Although US non-farm payroll data for July was slightly below expectations, the average number of jobs created over the last few months is still high. This means that the Federal Reserve (Fed) could stretch out hiking rates. The next big data to come out of the US economy will be that of the Consumer Price Index (CPI) for July this week. 

Non-farm payroll data slightly lower than expected

The non-farm payroll statistics for July, which was released on Friday, came in a little lower than anticipated. The 10-year yield decreased by more than 10 bps as a result, causing treasuries to increase.  

Although non-farm payrolls were a little weaker recently, average employment growth has remained strong and is still well beyond the Fed's threshold for when the rate-hiking cycle should come to an end. The Fed is particularly concerned about this data and the fact that salaries have outperformed expectations while the unemployment rate is still remarkably low.

Treasuries rise after Fed officials said interest rates could continue to rise

Treasuries were under pressure on Monday as a result of remarks made by many Fed officials suggesting higher interest rates might be needed to tame inflationary pressures in the future. On the back of these remarks, Treasury yields again increased, though they didn't hit last week’s peak.

Stock indices started the week off with a better performance

Due to the increase in market interest rates that started occurring after the Fitch rating agency announced that it would downgrade the credit rating of US debt, the stock indices ended the week with significant losses. Although they performed somewhat better on Monday, the pressure still exists, especially for technological stocks, which are the most susceptible to financing conditions.  

This was the case with Tesla, which fell 6% in the last two days, and Apple Inc, which fell more than 7% after reporting the lowest revenue in a year and with drops in hardware sales.

CPI release in focus this week

The CPI for the month of July will be released this week, and it has the potential to have a significant impact on the outcome of the next Fed meeting as well as the performance of market assets.  

The general CPI is predicted to increase slightly from the previous 3%. Investors are expected to increase their bets on a new rate hike if this is the case and the CPI does not exhibit any obvious signs of a fall. 

DMO 8.8.2023 graph.png

Apple Inc. Common Stock monthly chart August 8, 2023. Sources: Bloomberg, Reuters

Key Takeaways

  • Non-farm payroll data for July was below expectations
  • Fed officials commented on the possibility of further interest rate hikes
  • Treasury yields rallied on these comments
  • Stock indices regained some of their heavy losses at the beginning of the week
  • Technology stocks are feeling pressure
  • CPI data for July to be released this week
  • Forecast for the general CPI is for a slight rise  

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Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.