Last week ended with the release of US jobs data leading to a rise in government bond yields. The Labor Department data exceeded market expectations and reinforced the likelihood that the Fed will hold rates for the foreseeable future, according to The Wall Street Journal, which reported that “employers added 266,000 jobs in November and unemployment matched a 50-year low of 3.5%, signs the U.S. economy is withstanding a global slowdown.” Safe haven assets dipped on the release of the figures last week, and Bloomberg says traders are “trimming their bets” on another quarter-point cut next year. However, yields on US Treasuries fell at market open Monday as investors are gearing up for the Dec. 8 Fed meeting in the week ahead. In more Fed-related headlines, Treasury Secretary Steven Mnuchin said on Thursday that he met with Fed Chairman Jerome Powell and has been working closely with the agency to address strains on money markets, beyond the Fed’s continued repo operations. The Swiss National Bank and the European Central Bank will also be holding monetary policy meetings this week.
Domestic politics will also take centerstage in the week ahead. Congressional impeachment hearings continue, and the US House Judiciary Committee will hear evidence from lawyers for both the Republican and Democratic parties. The White House declined to participate and will instead prep for a potential trial in the Senate.
The investment community is also closely eyeing any developments in the US-China trade saga as the next round of tariffs are slated to kick into effect December 15. The US is scheduled to impose another $156bn of Chinese goods and top trade official Larry Kudlow has said while the US wants to finalize the long-awaited Phase One deal, President Trump is prepared to pull out of the tenuous agreement if Beijing doesn’t meet his terms. Newly released commerce data out of Beijing indicates that Chinese exports to the US have posted their twelfth consecutive monthly decline and have fallen 23% YoY. Over the weekend, trade officials from both countries maintained that the dueling economies were hoping to ink a deal as soon as possible.
The flash move for Treasuries this week shows the jitters of fixed income investors, worried of the impact of stimulus and potential inflation.
This week shows an improved valuation of the asset class given the moves in underlying Treasury yields, making fixed income investments more attractive. Will this trend continue?
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