Despite ANOTHER strong nonfarm payroll report of +288,000 net new jobs created in June, 2014 by the US economy, the 10-year Treasury yield couldn’t crack the 2.66% level.
There are a number of quality technicians watching this level including Gary Morrow (@garysmorrow) and CNBC’s Rick Santelli.
Talking to Gary Morrow this morning after the release of today’s report, Gary related the 2.66% yield level on the 10-year Treasury was the June high yield print, and the declining 200-day moving average on the TNX (the CBOE 10-year Yield Index) resides at 2.69%.
Rick Santelli was talking the 10-year, Treasury 10-year bund spread, but he was also locked in on 2.66% – 2.67%. Rick thinks part of the demand could be coming from the attractive relative yield of 2.65% on the 10-year Treasury relative to other sovereign government debt.
Those are your risk levels. Over the 200-day m/a or 2.69% and we add to the TBF.
Fundamentally, average hourly earnings were up 2% y/y this mornings, and the average workweek was exactly the same as last month.
If you listen to Janet Yellen, wage inflation is more important to Fed policy than commodity inflation. We learned that lesson in 2007. The Core PCE deflator and the various inflation measures have ticked up a little bit, but not enough to worry Yellen.
We’ve seen multiple strong employment reports the past 3 – 4 months and no reaction in Treasuries. The inflation outlook remains benign, but it is still very tough to buy a 10-year Treasury at a 2.65% – 2.66% yield.
Per Brian Wesbury’s blog, the first 6 months of 2014 have averaged net new jobs of 231,000, the fastest first half since 1999.
Again, the 10-year Treasury has rallied this year. Pretty frustrating given the plethora of duration negativity in the market.
Check for our Weekly Earnings Update tomorrow, Friday, July 4th, 2014.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager