We have been doing this a long time.... And our observations are that many times we have seen rates rise to the brink of a breakout to higher yields right before the employment number... It usually plays out where something happens to disappoint the bears/hawks and treasuries rally back into the range.. As much as we are a bear on treasuries and still think 1.25 5 years and 1.95 10 years, we are not sure that this is the time... Nonetheless, this is where we are... Four times last night 10 years tried to break above 1.60 yield and they could not do it... The high yield according to the BB GIY overnight chart was 1.5995... 5 years hit a new high that we have not seen pre-pandemic, February 2020... The front end, even the 10 year, are all showing that they could break a head and shoulders. The 10 year is close to completing the right shoulder of an inverted head and shoulders pattern. The neckline is at 1.70.. We will see..
The whisper number for employment is higher, but the scenarios are important...
Scenario 1... Number is at the high end of the range...BB Intelligence is at the high of 750,000...MS is 700,000...GS at 600,000... We think the bar for the Fed to taper is much lower so any number above 400,000 will cause Powell to start tapering in November... 10 years break 1.60 but buying comes in... Equities will crack if the 10 year exceeds 1.70, so rates will be tempered...
Scenario 2... Number is less than 500,000... Less than 400,000, but BB economics say the Fed danger zone is 238,000... How they got that precise number is uncertain... But it makes sense... So above 300,000 but below 500,000 will raise a yellow flag for the Fed, but they will still taper... 10 years hold 1.60, and may rally back to 1.52, but supply is looming Tuesday and bonds are closed on Monday.
Scenario 3...Oh Oh... Number is low... Say under 200,000... Maybe even negative.. Fed starts to rethink their tapering... But the good thing is the Fed can mumble through their next meeting waiting a few days for the October number to come out... They still taper, but may wait until the middle of November but tapering is coming... Tapering is currently a waste of resources and the Fed has to do it now or their window will close in 2022... Rates rally but again run into selling...
Rates...we are still a bear regardless of the number today... 5 years are going to 1.31 and 10 years will exceed 2%... Inflation is still out of control, and even those that still cling to transitory should see the latest Manheim numbers where used car prices are up 5.3% month over month and the used vehicle index is up 27.1% from a year ago... Add in housing and rental inflation, and ridiculous supply chain issues ,and you see where current treasury yields make no sense... There was a BB story yesterday saying that wealthy individuals have exited both treasuries and munis, due to the negative real returns... And we have started to see exit outflows from Funds... Expect that to accelerate... Question is at what level will equities start to get concerned.
New issues...still solid demand but cracks are starting to show.. Yesterday about 8 billion was priced bringing the week to date above the initial expectation, 27 versus 20 expected. Issuers seemed to forfeit pricing leverage, paying more than 8 basis in concessions to outstanding deals... Most have been priced through outstanding issues...Junk came with 6 issuers raising 2.7 billion...
Lots more we could talk about, but the key number is only 30 minutes away.. Fade the first move, but go with the second move around 9.15... See what stocks do... Higher rates are coming, but it could be held off until the real tapering starts, and then it will be ugly