U.S. Treasury bond yields have declined moderately as investors prepare for the release of key U.S. data that could provide fresh hints about the state of the economy and the monetary policy path.
The yield on 5-year Treasury bonds fell by 3.2 basis points, reaching 4.496%, while the yield on 30-year bonds was 4.623% (-2.9 basis points). Meanwhile, the yield on 2-year Treasury bonds, reflecting expectations of short-term interest rates, decreased by 2.0 basis points to 4.873%, while the yield on 10-year bonds fell to 4.481% (-3.1 basis points). The curve between the 10-year Treasury yield and the 2-year yield remains inverted, sending a warning that the economy may be falling or has already fallen into recession. Now the gap between 10 and 2 year U.S. debt is 39 basis points.
As for the data, JOLTs job openings figures for April, ADP employment report for May and nonfarm payrolls report for May will be presented later this week. ISM’s purchasing managers’ index reports for both the services and manufacturing sectors are also due this week. Meanwhile, the Fed will hold a meeting next week. And although market participants do not expect any changes in policy parameters at the June meeting, they will closely monitor the meeting in search of fresh hints on the prospects for monetary policy and the US economy.
Data on the number of vacancies and labor turnover (JOLTS) continue to signal that the US labor market is gradually cooling, despite strong nonfarm payrolls growth. The number of vacancies at the end of March fell to 8.488 million, which is 12% lower compared to the same period in 2023, and 30% lower than the peak in March 2022. At 5.1%, the vacancy rate fell to a more than three-year low. The softening in the JOLTS data does not only apply to the total number of vacancies. In the April report, market participants will closely monitor the level of layoffs. The proportion of employees quitting their jobs, as a rule, strongly depends on the cycle. When the labor market is tight, workers are more likely to quit their jobs amid good prospects of finding a better or better-paying job. When the labor market is weak, workers often have no confidence that they will be able to quit their jobs and successfully find more favorable conditions elsewhere. More recently, the layoff rate has dropped sharply from a post-pandemic high, and over the past few months it has fallen below the level of 2019. This indicates a decrease in demand for labor and suggests that wages will continue to decline throughout the year. According to forecasts, the number of vacancies fell to 8.35 million in April from 8.488 million in March.