PrefBlog

The US jobs number came out today:

The US labor market hit a soft patch in September as the economy added just 29,000 jobs and the unemployment rate increased to 4.2%, new Bureau of Labor Statistics data showed Friday.
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The annual rate of wage growth slowed for the fourth month in a row, landing at 3% in September, which is the lowest since May 2021.
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Healthcare, buoyed by an aging population in need of more medical services, has driven much of the employment gains in recent years and continued to do so in September. Healthcare and social assistance added 23,000 jobs, a modest uptick for a sector that added 57,000 jobs per month last year.
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The construction sector notched employment gains for the seventh month in a row, adding 11,000 jobs. The bulk of the gains came from the non-residential side, a likely reflection of the massive investment in AI-related infrastructure such as data centers.

So bonds did well:

The weaker-than-anticipated data pulled down expectations for a rate hike of at least ​25 basis points from the Fed at its meeting at the ‌end of October to 22.7 per cent, according to CME FedWatch, from 24.4 per cent in the prior session and 64.2 per cent a week earlier.

The cry goes up from the prediction markets and gambling hells … “Buy the dips!”:

A wave of investor buying reversed an early selloff in US Treasuries on Thursday, providing relief to bondholders after long-term yields surged to their highest level in 24 years following the latest hot economic data.

The reversal opened October ⁠on an optimistic ​note following the largest quarterly rise in 10-year yields since 1994, a year known on Wall Street as the great bond massacre. Yields on 10- and 30-year Treasuries hit their highest level since the spring of 2002 at midmorning on Thursday after the Institute for Supply Management said US manufacturing activity was little changed in September, with prices for inputs surging amid strong demand, pointing to sustained inflation pressures.

The early selloff came against ​a deteriorating backdrop for inflation, with benchmark Brent oil prices rallying after China suspended exports of ‌oil products. Earlier data showed that new applications for US unemployment benefits fell last week and layoffs decreased in September, suggesting that labor-market stability persisted even as employers remained cautious about boosting hiring.

But the momentum shifted toward buying bonds shortly after 10 a.m. EDT (1400 GMT), with traders and analysts citing a widespread sense that the sharp rises in yields over the past six weeks have vastly improved the risk/reward profile on US Treasury debt. On Thursday afternoon, benchmark yields were on track for their ‌biggest drop in ​two weeks after dovish comments from Federal Reserve ‌officials.
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Some of the strongest buying occurred in 2-year Treasuries, with yields marking their biggest declines in a single session since August 2025. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last down 8.94 basis points at 4.798%.
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The yield on benchmark U.S. 10-year notes fell 5.02 basis points to 5.243% after earlier trading at 5.3445%, their highest level since April 2002.

The 30-year bond yield fell 3.21 basis points to 5.6069% after earlier reaching 5.6935%.

Well, that was a day and a half! The bottom fell out of the StraightPerpetual market for most of the day and FixedResets were not spared; at about 3:30pm the TXPR price index was down about 45bp.

I’m pretty sure all this happened because Assiduous Reader Nestor has declared:

at 5.7% US 30 year, i definitely want at least 10% on my perpetuals. lol…

Well, now I know who swings the big stick around here…

Then in charged the cavalry in the form of portfolio managers reinvesting their quarter-end dividend receipts I think and TXPR ended up 25bp on the day. Tomorrow? Who knows?

PerpetualDiscounts now yield 6.10% (up 30bp from last week!), equivalent to 7.93% interest at the standard conversion factor of 1.3x. Long corporates yielded 5.43% on 2026-09-29 and ZLC was down $0.01, or 7bp in price on 9/30 which, given the weighted average duration (9/29) of ZLC of 12.04 implies an increase of about 0.5bp in yield, so call it 5.44% on 2026-09-30. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has exploded to 250bp from the 215bp reported September 23.

Sorry this is late! I went out to watch a movie last night. Photography was excellent but I don’t think the story was told very well – too much Troy (if they want to make the prequel, The Iliad, I’m all in favour and will go see it!), too much of Penelope’s feelings, very odd harpies, not enough narrative. And, unforgivably, Odysseus didn’t tell the Cyclops his name was ‘Nobody’, one of the best jokes in classic literature. But it was worth the time and money – go see it, if you haven’t.

Bond market excitement continued:

US longer-dated Treasury yields rose on Friday, extending their recent sharp move higher after more upbeat economic data reinforced concerns about inflation.

The 30-year US bond yield hit a fresh 22-year high and the benchmark ⁠10-year yield ​reached a fresh 19-year high.

Yields have jumped recently on persistent worries about higher inflation.

New orders for key US manufactured capital goods increased more than expected in August and the previous month’s figures were revised sharply higher, signaling another quarter of robust growth in business spending on equipment ​amid an AI buildout.
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The bullish data has driven up expectations for another interest-rate increase by the Federal Reserve. Traders now see a more than 64% chance of another hike when the US central bank next meets in October, according to CME Group’s FedWatch Tool. That expectation was around ‌55% a ​week ago.
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The yield on the 30-year bond was last up 2.4 basis points at 5.486%. It reached 5.5319%, the ‌highest since 2004.

The yield on the benchmark US 10-year Treasury note was last up 0.3 basis point at 5.165%. ​It earlier reached 5.2297%, the highest since 2007.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 30.3 basis points.

The two-year US Treasury yield, which ​typically moves in step with interest rate expectations for the Fed, was down 3.5 basis points at 4.86%.

The TXPR price index was down 52bp today. Volume was 707,980, near the median of the second-highest volume of the past 20 trading days.

CPD was down 71bp to 13.95, on volume of 136,110 (consolidated: 332,330), highest of the past 20 trading days.

ZPR was down 31bp today on volume of 139,470 (consolidated: 423,470) above the median of the past 20 trading days.

There’s some hawkish talk from Fed governors:

The U.S. central bank will likely need to raise interest rates again to curb unacceptably high inflation, two Federal Reserve policy-makers said on Thursday.

“Returning inflation to 2 per cent is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,” Philadelphia Fed President Anna Paulson told a conference at her regional bank.

Paulson, a voting member of the central bank’s rate-setting Federal Open Market Committee, described inflation as “stubbornly elevated” and said “if conditions evolve as I expect, some modest further tightening may be warranted.”

Speaking in London, New York Fed President John Williams also suggested tighter monetary policy is coming. Citing Fed policy maker projections released last week that penciled in a rate increase, he said “it’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it.”

Paulson and Williams spoke just over a week after the Fed raised its benchmark interest rate by a quarter of a percentage point, to the 3.75-to-4.00-per-cent range, in an effort to curb high inflation that threatens to undermine public confidence in the central bank’s ability to reach the 2-per-cent target.

The bond market continued its weakness:

US and Iranian leaders exchanged barbs this week at the UN General Assembly. Brent crude prices rose ​over 3% to nearly US$107 per barrel after a Houthi missile attack on ‌Saudi Arabia revived fears of supply disruptions.
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The U.S. 30-year Treasury bond yield reached its highest since 2004. The yield on the benchmark U.S. 10-year Treasury climbed to 5.21% by late afternoon, up 10 basis points and its highest since early this century. The Canadian 10-year yield was up about 5 basis points to near 4%, its highest since 2023.
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The S&P 500 declined 0.02% to end the session at 7,704.13 points. The Nasdaq edged up 0.01% to 26,939.37 points, while the Dow Jones Industrial Average declined 0.31% to 51,349.98 points.

The ​TSX ended down 44.97 points, or 0.1%, at 35,706.46, its lowest closing level since September 16.

The Canada five-year finished the day at 3.72%.