Yields Fall Ahead of Tomorrow’s Labor Data

Rates continue to fall in FOMC aftermath. Swap rates fell 9bps at the short end of the curve today and are now ~15bps lower over the past few sessions following Chair Powell’s presser. The 2y UST yield closed at 4.87%, the first close below 4.90% in nearly three weeks. Meanwhile, tomorrow’s labor data looms large, with nonfarm payrolls, unemployment rate, and average hourly earnings the highlights. Jobs added in April are expected to fall, the unemployment rate is expected to stay flat, and hourly earnings are forecasted to decline 0.1% YoY.

US labor costs increase by fastest pace in a year. Unit labor costs climbed by 4.7% in the first quarter vs. 4.0% expectations. The jump follows 0.0% growth last quarter and comes along side much slower labor productivity growth, at 0.3% vs 3.5% last quarter. Nationwide financial markets economist Oren Klachkin said, “the strong rise in unit labor costs is another in a string of recent data points indicating that inflation pressured remain relatively high.”

BOJ suspectedly intervenes in FX markets again. After propping up the yen on Monday, the BOJ seemingly came back for more overnight. The yen surged from over 157 per dollar to 153 per dollar instantly and closed at similar levels. The intervention is estimated to have been worth 3.5 trillion yen, equivalent to $22.6B. Monday’s intervention was even more sizable, estimated to be worth $35B. Brad Bechtel, global head of FX at Jeffries, said the timing was “pragmatic… volumes were light, liquidity was thin, and it’s easier to make an impact at that time.” Despite the impactful intervention, the yen remains well off its 2024 high of ~141 per dollar.