Daily Market Color November 2, 2023Treasuries Rally Ahead of October Labor Data Long-term rates plunge further, flattening the curve. Today’s trading saw longer-term yields extend their freefall, with the 10y yield now down ~29bps over two days to 4.66%. Shorter-term rates rose meanwhile, narrowing the 2s10s inversion 12bps today, the third largest decline this year. Focus centers on tomorrow’s jobs, unemployment, and earnings data, which could spur further rate increases if strong. Surging productivity may partially offset wage pressures. US productivity jumped to a 3-year high, rising rapidly from 3.5% last quarter to 4.7%, potentially muting inflationary impacts from rising wages. Unit labor costs also dropped 0.8%, the first retreat since late 2022. This precedes tomorrow’s important jobs and unemployment figures. Estimates forecast a steep monthly decline in October payrolls along with a steady 3.8% jobless rate. Dollar strength, foreign bond selling additional headwinds. While oversupply and waning demand weigh on Treasuries, dollar strength may also be curbing appetite for US debt. Some foreign central banks have sold holdings to support currencies versus the rising greenback. Notably, China and Japan, the two largest overseas holders, cut their Treasuries 14% and 6.7% respectively in August versus a year earlier. Although Fed tapering outweighs recent foreign selling, it highlights another potential risk for Treasuries ahead.