Bond Market Commentary

Over in bond land, Treasury yields are lower before the opening bell Friday as markets assess ongoing developments in the Iran war. Investors are also looking forward to today’s jobs report for April and the preliminary May Survey of Consumers from the University of Michigan. As of 6:54 AM ET, the yield on the 10-year note is decreasing two basis points (0.02%) to 4.37%, while the 30-year bond yield is falling one basis point (0.01%) to 4.95%. The yield on the two-year note, which is more sensitive to changes in monetary policy, is down two basis points (0.02%) to 3.89%. 

Treasury yields were higher on Thursday as preliminary first-quarter nonfarm productivity decelerated to 0.8% quarter-over-quarter, coming in slightly better than expected, while unit labor costs eased more than anticipated to an annualized 2.3%. Initial jobless claims picked up, though continuing claims for the week prior fell. Consumer credit registered a greater-than-expected increase in March, rising by $24.86 billion, following a downward revision of February’s increase to $8.85 billion. The yield on the 10-year note was up four basis points (0.04%) to 4.39%, while the 30-year bond yield rose two basis points (0.02%) to 4.96%. The yield on the two-year note increased four basis points (0.04%) to 3.91%. As of end of day Thursday (May 7), futures markets are pricing in one basis point (0.01%) worth of rate cuts at the Federal Reserve's (Fed’s) upcoming June meeting, with a cumulative four basis points (0.04%) worth of rate hikes by year-end 2026.

On the data front, April’s nonfarm payrolls are expected to expand by 65,000 versus the prior month’s 178,000, while manufacturing payrolls are projected to rise 3,000 compared to the prior month’s increase of 15,000.  The unemployment rate is expected to remain steady at 4.3%, while the labor force participation rate is also projected to hold steady at 61.9%. Average hourly earnings are projected to rise 0.3% month-over-month (MOM) and 3.8% year-over-year, accelerating from the prior month’s increases of 0.2% and 3.5%, respectively. The University of Michigan’s preliminary May reading of consumer sentiment is forecasted to come in at 49.5, lower than the prior month’s 49.8.  The one- and 5-10-year inflation expectations for May from the University of Michigan are expected to come in at 4.8% and 3.5%, respectively, compared to the prior month’s 4.7% and 3.5%, respectively. The finalized March reading of wholesale inventories is expected to show an increase of 1.4% MOM, similar to the initial reading, while March’s wholesale trade sales is expected to come in at 1.8% MOM versus the prior month’s increase of 2.7%. 

In the central bank space, Fed Vice Chair for Supervision Michelle Bowman, Fed Governor Lisa Cook, Fed Governor Stephen Miran, Fed Governor Christopher Waller, San Francisco Fed President Mary Daly, and Chicago Fed President Austan Goolsbee are scheduled to speak today.

Mortgage rates were higher in the latest week. For the week ending May 7, the average 30-year fixed mortgage rate was up seven basis points (0.07%) to 6.37%, versus 6.76% a year ago. The 15-year fixed mortgage rate increased eight basis points (0.08%) to 5.72%, versus 5.89% a year ago.

The 30-day visible supply fell $2.128 billion to $12.835 billion, below the 12-month average of $14.019 billion.

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