Wow, Rates are Really High

Rates sell-off as long-end boosted by Treasury issuance. Yesterday’s headline of a rise in long-dated Treasury issuance boosted yields and rates today, with the 30-year yield hitting its highest mark since November and closing at 4.092%. The 10-year yield also saw a large jump, rising 6bps to close above the 4% psychological threshold at 4.02%. The move comes as markets await Friday’s nonfarm payrolls, with tomorrow’s ADP employment change potentially less important given last month’s large ADP beat and succeeding NFP miss.

Jobs data shows signs of easing ahead of Friday’s unemployment report. US job openings in June were the lowest since April 2021 according to the Job Openings and Labor Turnover (JOLTS) survey. Openings fell from ~9.8mm in May to ~9.6mm in June, roughly in-line with estimates. Today’s ISM data indicated manufacturing contracted in June as demand for American goods sobered, shedding some light on less job openings in goods-producing sectors partially offset by service industries including healthcare, arts and entertainment. Hiring also declined by 326,000, landing at the lowest level in over 1-year. On the other hand, layoffs, which are generally considered a “loud siren” during downturns, declined to the lowest level since late 2022 signaling calm waters for current employees. Overall, today’s jobs data illustrated some softening in an otherwise robust labor market.  

U.S. loses top credit rating. Fitch Ratings announced a U.S. credit downgrade today from AAA to AA+, with a multitude of factors involved. The expected economic slowdown over the next few years is at the forefront, with additional 2023 rate hikes a potential source of ever-growing recession concerns. Fitch also cited recent standoffs and last-minute resolutions as sources of declining confidence in fiscal management. Though the first time since 1994 that the US was ranked below AAA by Fitch, Treasury Secretary Janet Yellen responded to the headline, calling it “arbitrary” and “outdated.”