Livin' on a Prayer: The Bond Market Edition

This week, we discuss the latest Employment Report, the Treasury’s $6 billion repurchase operation, the rise in Treasury yields, intervention in the Japanese yen, the war in Iran, and widening CCC credit spreads. While equity markets have remained remarkably stable, bond markets have borne much of the strain from recent macroeconomic and geopolitical developments. Many observers hailed the latest nonfarm payrolls report as evidence of a resilient labor market, but the underlying figures were considerably less reassuring. Wage growth slowed, labor force participation remained depressed, and the number of long term unemployed continued to rise. Meanwhile, Treasury Secretary Bessent’s $6 billion repurchase operation, three times the size of the most recent operations, did little to calm the bond market. The 30 year Treasury yield climbed to 5.3%, while the 10 year yield reached 4.84%. Mortgage rates followed, with the 30 year rate rising to 6.97%, adding further pressure to an already fragile housing market and, by extension, consumer spending. Geopolitical tensions provided another source of unease as Iran and the United States escalated their conflict, pushing oil above $100 a barrel and gasoline to $4.27 a gallon, its highest level in several months. Taken together, the week offered an increasingly stark contrast between the relative calm in equities and the mounting strains evident across bond and credit markets.