Payrolls Friday did not live up to its billing, underwhelming bulls and bears, doves and hawks, and stocks and bonds. Treasuries finished the session lower, but culled their deepest losses and stocks ended optimistically in the green.
Rather than ending rate cut hopes, the inconclusive data merely tamed the extreme view that the Fed could go for a larger 50 basis point cut next week. The payrolls result (-5,000) was damp, but not as much as feared. The unemployment rate ticked back up to 5.7%, but not has high as the 5.8% expected.
In addition, personal consumption declined 0.4%, partly fueled by the decline in auto sales. ISM manufacturing index also fell a point to 48.5 from 49.5, not quite as deeply as was foreshadowed by Chicago-PMI and Philly Fed reports. Construction spending rebounded 0.6% from a 0.8% deficit, but a steady stream of double digit auto sales declines helped put a floor under prices.
The December bond shed 10/32 to 110-11, but cut its losses after a precipitous fall to 109-11. The two-year yield closed right on the 1.75% Fed funds target and the bond yield pushed back above 5.0%. The two-year note and 30-year bond spread narrowed modestly three basis points to +328 basis points by session end.
The $40 billion refunding next week kept the belly of the curve preoccupied.