Morning Bid: Bonds Simmer as Payrolls Offer Reality Check

As the market opens today, investors are bracing for the release of the all-important nonfarm payrolls report, which could provide a reality check for the bond market's recent rally. The report, due out at 8:30 a.m. ET, is expected to show that the U.S. economy added 155,000 jobs in December, a decline from the 227,000 jobs added in November. However, market participants are divided on how much of a slowdown there is in hiring, with some on Wall Street expecting the numbers to come in weaker than forecast.

The bond market has been on a tear recently, with yields falling as investors bet on a slowdown in the economy and a potential pause in the Federal Reserve's rate-hiking cycle. However, the payrolls report could challenge this narrative, especially if the numbers come in stronger than expected. A surprisingly strong report could drive 10-year yields past the psychologically important level of 4.739%, with bears hungering for the psychologically important level of 5%, highs not seen since 2007.

On the other hand, a weak report could see bond traders buying the market, thus lowering interest rates. This would be a boon for the bond market, which has been rallying on expectations of a slowdown in the economy and a potential pause in the Fed's rate-hiking cycle. However, it is important to note that investors and the Fed are now more focused on how President-elect Donald Trump's policies might unfold over the next few months, rather than on the payrolls report.

In the foreign exchange market, the dollar is enjoying the sixth straight week of gains. The British pound is an underperformer, down 1% to $1.2303, the lowest in over a year. Overnight, a slew of Fed officials came out and agreed there is no rush to cut interest rates. This is a positive sign for the dollar, as it suggests that the Fed is not concerned about the recent weakness in the economy and is more focused on controlling inflation.




In conclusion, the bond market is in a state of limbo as investors await the release of the nonfarm payrolls report. A strong report could challenge the recent rally in bonds, while a weak report could reinforce the market's expectations of a slowdown in the economy and a potential pause in the Fed's rate-hiking cycle. However, investors and the Fed are now more focused on the potential impact of President-elect Donald Trump's policies, rather than on the payrolls report. The dollar is enjoying a strong run, with the British pound being an underperformer. Fed officials have agreed that there is no rush to cut interest rates, which is a positive sign for the dollar.

As always, it is important to stay informed and make investment decisions based on the most up-to-date information and analysis. The payrolls report could provide a reality check for the bond market, and investors should be prepared for any potential surprises.