Bonds(CBOT:USU14) have had a tough week. The price at which the government can borrow funds for 10-years has surged by almost 20 basis points since touching 2.40%on Thursday and the yield curve has steepened. Bond sellers appear to be taking advantage of the highest bond prices in almost a year to position for the slew of economic data due for release for the remainder of the week.
We got a reminder that low interest rates are having positive impact on auto demand earlier with May auto sales reaching an annualized pace of 16.77 million units for the best performance since February 2007. And with ADP employment due out midweek along with ISM manufacturing and PMI services, there are plenty of willing investors wanting to lock-into lower yields in the event that the recent rally that had Wall Street economists scratching their heads, turns sour. And of course Friday delivers the government’s nonfarm payroll report ahead of which market wisdom projects 215,000 additional job gains.
It is worth noting that last month the strongest gain for payrolls in three years was met not with bond selling but bond buying as the post-mortem of the household survey revealed a more fragile situation than the biggest slide in the headline unemployment rate since 2010 pointed to.
Additionally, looking overseas, German bund yields reacted unfavorably to a very soft inflation reading for the Eurozone earlier. Such softness virtually guarantees Mr. Draghi will have to poke his stick into the hornet’s nest, and expectations are high for some mix of easier policy. However, that bund yields rose and the fact that the euro currency rebounded following the report, seems to indicate that dealers have prepped earlier for this week’s central bank meeting.