Soft employment sparks new low in SFRU4/SFRU5
July 8, 2024
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–Though the NFP print was higher than expected at 206k, the unemployment rate ticked up to 4.1% (highest since Nov 2021) and private payrolls were just 136k (only 4 lower prints in past 3.5 years). Average Hourly Earnings yoy were 3.9%. Yields fell, with tens down 7.4 bps to 4.271%. Both twos and fives sank 9.2 bps to 4.597 and 4.216. New high in 5/30 to 25.1 bps (upside breakout). With SFRU4 increasingly constrained as it nears the IMM date (up only 2 bps to 9489) near calendar spreads made new lows. SFRU4/U5 plunged 11.5 bps to a new low of -114.5 (9489/9603.5). U5 jumped 13.5 bps, largest change on the strip. SFRU4/SFRZ4 also made a new low at -34 (9489/9523). FFQ4/FFQ5 settled -122.5 (9469/9591.5)…nearly five eases priced over next year.
–On the SOFR strip, the red/gold pack spread closed at -9.375, the least inverted on a rolling basis since March. I use the old definition, with U5 as the front red contract and U8 as the first gold. Using average prices, the red pack (2nd year) is 9620.875 and the gold pack (5th year) is 9630.25. In a more normal world, that spread is positive…we’re getting there.
–Today brings Consumer Credit for May, expected +$10b. Auctions kick off tomorrow, starting with the 3y, and Powell begins Congressional semi-annual testimony before the Senate Banking Committee. This morning bonds have pulled back a bit, perhaps as a concession to auction supply. Precious metals have likewise eased from strong rallies last week.
