The polite version is that weaker US labor market data (ADP employment +89K vs. 159K expected, and median pay up ‘only’ 5.9% y-o-y) saw the market reverse some of Tuesday’s bond sell-off and ‘pause’ to see what comes next. The ruder version is best summarized by the disturbing graphics in my 2023 outlook ‘The Pause That Doesn’t Refresh’ with its 1950’s-advert style ingredients: “INCLUDES: Geopolitics! Inflation! Policy errors! Recession! NO RATE CUTS!”, and its health warning: “This product does not contain: hopium, copium, asset-rich-income-poor, gold, crypto, or Petroyuan. Shake yourself well before use.”
To summarize, US 10-year yields started at 4.80%, pushed up to almost hit 4.90%, then, just as key bond metrics were finally flashing inflation concerns, and long before the ADP data, this move was reversed, and once we got the ADP data, yields closed lower on the day. Moreover, as we got a staggering 5% drop in oil prices(!) to boot, those yields ended at 4.72%, so a near 18bp intra-day round trip. At the short end of the US curve, 2-year yields went to over 5.17% and then dropped back to 5.05%. Further down the curve, supposedly above this fray, 30- year yields soared to over 5.01% and then collapsed to 4.86% within a few hours. Just to underline, this is the primus inter pares of global bond markets which everyone everywhere in the world has to look to for the cost of borrowing: and it’s trading like a penny stock.