Strong March Jobs Report Send 2/10 Treasury Yields to Invert

Posted April 4, 2022 – The strong March jobs report released by the Bureau of Labor Statistics on Friday, April 1st accelerated the 2-year treasury to 2.45% marking an inversion against the 10-year treasury, which also saw its yield rise on the same day, to 2.38%.

Historically, yield curve inversions have occurred prior to recessions, as investors, concerned about the state of the economy, sell short-dated Treasury securities in favor of long-dated government bonds.

The chart below illustrates the 2, 5, 10, and 30-year Treasury Yield convergence that has been a 12–18-month leading indicator of the previous 8 recessions. We believe the bond market is already pricing in a series of 50bps rate hikes and along with it, the increased likelihood of an overshoot and policy mistake by the Federal Reserve.

Friday’s March jobs report did little to change the expected course of the Federal Reserve, if anything, it gives policymakers more ammunition to favor a series of 50bps rate hikes in the coming FOMC meetings.

The jobs market has shown incredible resilience during the recovery from the Covid Omicron variant. In March, wages, productivity, and labor force participation were all up amidst the backdrop of nonfarm payrolls expanding by 431,000 bringing the unemployment rate down to 3.6%.

Leisure and hospitality continue to lead the job recovery as Covid restrictions ease. The chart below illustrates the one-month net change in jobs for March 2022. The key takeaway here is that jobs growth remains strong across all but 2 categories.

On average, we continue to see about 500,000 new jobs added per month and this is consistent with the trend we have seen over the past year with few signs of slowing.

Summary

As new data presents opportunities to adjust the portfolios, we continue to recalibrate the portfolios. This week we are reducing the cash in the Focused Growth Strategy, and we recently reduced cash and moved into a slightly more bulling stance in our tactical asset allocation strategies.

Joe Maas, CIO | CFA, CFP®, ChFC, CLU®, MSFS, CVA, ABAR, CM&AA, CCIM
David Stryzewski, CEO | CSA, NSSA