Fed Minutes Push Yields Higher

As expected, the recent raft of hawkish Fed speakers foreshadowed (whether intentionally or coincidentally) a hawkish message in today’s Fed minutes. At issue: “many” meeting participants felt that a December cut would NOT likely be justified as opposed to “several” who disagreed. This was compounded by the fact that BLS rescheduled the early December jobs report for 12/16/25–6 days after the December Fed meeting. In other words, there won’t be any employment data that would help the Fed justify a cut next month. Fed Funds futures agreed with a spike in implied yields immediately following the BLS news. Longer-term bonds followed suit after the Fed Minutes. 

Econ Data / Events

ADP Weekly Payrolls 

-2.5k vs -11.25k prev

Jobless Claims (October 18th)

232k vs 223k f’cast, 219k prev

Factory Orders

1.4 vs 1.4 f’cast, -1.3 prev

Builder Confidence

38 vs 37 f’cast, 37 prev

Core Durable Goods (Aug)

0.4 vs 0.6 f’cast/prev

Market Movement Recap

10:02 AM Slightly stronger overnight, but losing ground since 9:30am NYSE open.  MBS unchanged and 10yr up 1.1bps at 4.12

11:01 AM Bouncing back from AM weakness.  MBS up 1 tick and 10yr up 0.9bps at 4.118

02:13 PM no reaction to Fed Minutes. MBS unchanged and 10yr down 0.4bps at 4.106

02:43 PM Weakest levels of the day for MBS, down 2 ticks (.06).  10yr up 1.3bps at 4.123

04:18 PM Heading out near weakest levels. MBS down 3 ticks (.09) and 10yr up 1.9bps at 4.128

Correlation between stocks and bonds is hit and miss depending on other factors. Before the age of more aggressive Fed intervention, it was more common to see yields move in concert with stocks. These days, Fed accommodation expectations can result in the opposite correlation.  That said, there are still times when the old school “stock lever” is in full effect and this morning is one of them. It’s been particularly noticeable since the 9:30am NYSE open as a recovery in stocks is apparently sapping the safe haven demand for Treasuries seen earlier in the week.  Afternoon volatility potential is focused on the 2pm ET release of the Fed Minutes.

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With economic data being the most consistent source of motivation for rates, the market has been eager for it to return with the reopening of the government. While some higher profile reports have been rescheduled for the coming days (i.e. on Thursday, we’ll get the jobs report that we were supposed to get in early October), most updated release dates remain TBD.  Then there are the “surprise” releases–reports that completely skipped the step of being officially rescheduled and were simply released at a random moment with no warning. Such was the case with Jobless Claims data this morning.  Not to be confused with “the jobs report,” weekly jobless claims numbers are inferior in terms of their ability to set the tone for interest rates.  To be fair, they CAN have a moderate impact at times, but their ability to do so is nowhere close to that of the monthly jobs report. Case in point, today’s belated jobless claims data had no impact.  Nonetheless, the reemergence of government econ data is an important proof of concept when it comes to getting an accurate sense of where rates should be heading. While not technically econ data and not affected by the shutdown, Wednesday brings a scheduled event that can be just as relevant as many government reports. At 2pm ET, the Fed will release the minutes of its meeting from late October. This isn’t a rate cut opportunity, but it could shed additional light on the odds of a cut at the mid-December meeting. 

Modest Gains After Mid-Day Volatility

With only a few exceptions, bonds have been a rudderless ship during the government shutdown. With the backlogged data returning in a slow and uncertain fashion, rudder repairs are similarly slow. In today’s case, bonds benefited from overnight strength in overseas bond markets and a bit of ongoing weakness in stocks. The surprise release of stale jobless claims data did nothing to inspire and there was limited benefit from another negative print in the weekly ADP numbers. As soon as EU bonds closed for the day, US bonds began selling off. The damage was short-lived and well contained. The net effect was another in-range day ahead of higher consequence events like Wednesday’s Fed minutes or Thursday’s jobs report. 

Econ Data / Events

ADP Weekly Payrolls 

-2.5k vs -11.25k prev

Jobless Claims (October 18th)

232k vs 223k f’cast, 219k prev

Factory Orders

1.4 vs 1.4 f’cast, -1.3 prev

Builder Confidence

38 vs 37 f’cast, 37 prev

Core Durable Goods (Aug)

0.4 vs 0.6 f’cast/prev

Market Movement Recap

09:56 AM Stronger overnight with some additional gains after ADP data.  MBS up 6 ticks (.19) and 10yr down 4.8 bps at 4.091

11:39 AM MBS up 3 ticks (.09) but down an eighth from AM highs.  10yr down 1.5bps at 4.125 but up 4bps from AM lows.

04:18 PM Off the weakest levels. MBS up an eighth and 10yr down 2bps at 4.119

We’ve seen a clumsy, confused return of various economic reports this morning (several reports were no previously announced with rescheduled release dates). Thankfully, the surprise releases were not big-ticket items. The most relevant report of the morning was ADP’s new weekly job count (“NER Pulse”) which showed another decline. By the time it came out, bonds had already rallied nicely in the overnight session. This suggests traders were already keen to buy the dip in prices that resulted in yields hitting the top of the recent range. The Cleveland Fed WARN notices (which came out late yesterday) could have helped get the party started.