Official recognition of weaker labor conditions
August 21, 2024
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–Yields dropped Tuesday as Philly Fed Services fell to the lowest level since 2020 at -25.1. Tens down 4.7 bps to 3.818%. On the SOFR curve, June and Sept’25 were leaders, settling +8 (9651 and 9669). Today’s news includes BLS benchmark nonfarm payroll revisions. Estimates range from a downward revision of 400k to 1 million in the year ended March. From BBG: “There are a number of caveats in the prelim figure, but a downward revision to employment of more than 501,000 would be the largest in 15 years and suggest the labor market has been cooling for longer – and perhaps more so – than originally thought.” Notable weakness in DXY as rates eased.
–20 year auction today as well, followed by FOMC minutes.
–Flows were generally weighted towards an easier Fed. Powell speaks at Jackson Hole on Friday at 10:00 on the Economic Outlook. Exit seller of 60k 0QU4 9650p 8.0 to 7.5, settled 7.0 vs SFRU5 9669.0. Buyer of 30k 0QU4 9687.5/9700cs vs selling 9625p at flat. Call spd settled 3.0 and put at 1.75.
–October FF settled 9499.5, still leaning a bit closer to a 25 bp ease rather than 50 at the Sept FOMC (9504.5 is the dividing line). However, SFRU4/SFRZ4 spread is near -65. (9506.75/9571.5) a huge inversion for a three month period. And SFRH5 is at a price of 9621, a yield of just 3.79%. The market is pricing serious easing post-election.
As mentioned, U4/Z4 is -65, but U5/Z5 is -10.5 (9669/9679.5), U6/Z6 is 0 (both 9690.5, the peak of the SOFR strip) and U7/Z7 is +2 (9687.5/9685.5).
