Much-Needed Cooling Off Or Risk-On Rally Ahead? Yields Tumble, Bonds Gain After October Jobs Report

October jobs report numbers missed expectations Friday, and came in at nearly half of September's reported figures.

Non-farm payrolls increased by 150,000 jobs in October, registering a steep decline from September's 297,000 jobs. The figure fell short of market forecasts, which stood at 180,000. One key reason for the deceleration is likely the United Auto Workers strikes, which resulted in a net loss of jobs for the manufacturing sector.

Market Reaction To The US Jobs Report

Treasury yields tumbled across the board. The yield on the two-year Treasury fell to 4.87%, a decrease of more than 10 basis points, while the 10-year Treasury yields fell by 11 basis points to 4.56%. The benchmark Treasury yield has declined this week from recent highs, when it occasionally traded above the 5% threshold.

The dip in yields led to gains in exchange-traded funds invested in T-bonds. At the time of writing, these ETFs were recording the following price action Friday:

• iShares 20+ Year Treasury Bond ETF TLT was up 1.59%.
• Vanguard Long-Term Treasury ETF VGLT gained 1.58%.
• iShares 7-10 Year Treasury Bond ETF IEF gained 1.03%.
• SPDR Bloomberg 1-3 Month T-Bill ETF BIL was up 0.02%.
• iShares 1-3 Year Treasury Bond ETF SHY was up 0.19%.

Also Read: October Jobs Report Expected To Show Dip — Here’s How Markets May React

5 Economists React To NFPs Report

Joseph Brusuelas, chief economist at RSM US LLP, said the moderation in the pace of hiring points towards a cooler pace of growth and inflation. This could actually be needed by the American economy, which has been hiring and expanding at a torrid pace in recent months, he said.

Lawrence Yun, chief economist at NAR, sees the Federal Reserve pivoting from raising interest rates to the neutral stance it has now to eventually cutting interest rates next year. “Be ready for more home buyers and more home sellers,” he said.

Oliver Rust, head of product at Truflation, said the unemployment figures suggest the effect of monetary policy tightening is not feeding through to the labor market in a meaningful way. As such, he warns that an interest rate hike in December may be back on the table.

Brad McMillan, CIO for Commonwealth Financial Network, said the job report will help keep the Fed on the sidelines going forward. Since the dip in job numbers was anticipated, McMillan said the actual numbers — adjusted for the UAW strike — are probably better than the report ,indicating that despite the slowdown, job growth remains healthy overall.

Chris Zaccarelli, CIO for Independent Advisor Alliance, said the jobs report is one to trigger a “risk-on rally” into year-end. “Given that jobs growth is slowing and the unemployment rate is ticking up slightly, that is the kind of data that will keep the Fed on hold and both stock and bond prices should move higher (bond yields lower) in the absence of a more aggressive Fed, ” he said.

“The market climbs a wall of worry and we may see many more gains — in the form of a short squeeze and FOMO — before the next bear market begins,” he said.

Read Next: Economists See Recession Risk Waning, End Of Fed Rate Hikes: How Could Treasury ETFs React To Yields?

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