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.