Investors Awaiting Friday Employment Report
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
The stock market recovered some of its losses over the prior two days on Thursday, with the Standard & Poor’s 500 closing higher by 0.38 percent on the day and the Nasdaq Composite up 0.53 percent. After spending the first hour of trading chopping sideways, stocks drifted higher into the afternoon, then held onto their gains into the close on relatively light volume. The lighter volume is an indication that some investors are staying on the sidelines prior to the employment report coming out Friday morning, before the market opens.
Before the stock market opened on Thursday, the bond market was having issues of its own, sparked by that sell-off in the 10 Year German Bund, which took yields up to 0.79 percent before returning to 0.59 percent at the close. The 10 Year U.S. Treasury followed suit as interest rates rose to a high of 2.31 percent overnight — levels last seen in December of last year — but closed the session on Thursday at 2.18 percent.
For the first time in a long time, this week the top-performing bonds are high-quality short-term Treasury bills that mature in 13 weeks. These bonds pay a very low interest rate, but they also don’t fluctuate much in price when interest rates rise. The top-performing bond index for the week is the Barclays 1-3 Month U.S. Treasury Bill index, down 0.02 percent over the past five trading days. What this is saying is that all other areas of the bond market have declined in value over the past week as interest rates have gone up.
The bonds that have been hit the hardest are the higher-quality long-term maturity bonds, with the Barclay’s U.S. 20+ Year Treasury Bond index down 2.99 percent over the past five trading days and lower by 5.60 percent over the past month.
The rally in bond yields has been a function of increasing inflation expectations, specifically given the rebound in oil prices over the past four months. Rising oil prices have reduced investor fears of deflation in the U.S. without being perceived as an interruption to the recovering economy.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.