Bond ETFs rise after revised jobs data but 'everybody is waiting for Powell'

Dow Jones08-22

MW Bond ETFs rise after revised jobs data but 'everybody is waiting for Powell'

By Christine Idzelis

The economy is 'cooling off,' but the softer pace of jobs growth remains 'pretty healthy,' says Charles Schwab's chief fixed-income strategist

The U.S. bond market was rising Wednesday, as investors assessed revisions to labor-market data and looked ahead to Federal Reserve Chair Jerome Powell's Jackson Hole speech Friday.

Payroll growth now appears weaker than earlier estimated, but the economy is hardly "falling off a cliff," according to Kathy Jones, chief fixed-income strategist at Charles Schwab. The U.S. still has a "pretty healthy pace of jobs growth and a growing economy," she said in a phone interview, although there's a "trend toward cooling off."

That's why Treasury yields drifted "a little bit" lower Wednesday morning after the Bureau of Labor Statistics released its preliminary revisions to U.S. jobs data for the 12 months through March, according to Jones.

The revisions translated into slower jobs growth on average per month over that period, supporting "the idea that we'll get rate cuts and that yields will continue to come down," she said. "But everybody is waiting for Powell," Jones added, referring to the Fed chair's upcoming speech Friday at the Jackson Hole Economic Policy Symposium.

Many investors anticipate that the Fed will begin lowering its benchmark rate at its next policy meeting in September, as inflation has eased significantly and the labor market has softened.

That potentially sets the Fed up for a less restrictive rate policy, said Jones, with investors expecting that the central bank will want to avoid unnecessarily triggering a recession by keeping its benchmark rate too high for too long.

Federal-funds futures show traders largely anticipating a quarter-percentage-point cut in September, which would bring the Fed's policy rate to a target range of 5% to 5.25%, according to the CME FedWatch Tool, at last check.

Minutes from the Federal Reserve's last policy meeting, released Wednesday at 2 p.m. Eastern time, showed that a majority of Fed officials deemed a rate cut in September as likely.

The U.S. fixed-income market remained up Wednesday after the Fed minutes came out, with falling yields sending bond prices higher.

For example, shares of the iShares Core U.S. Aggregate Bond ETF AGG, an exchange-traded fund that tracks an index of U.S. investment-grade bonds including Treasurys, mortgage-backed securities and corporate debt, were up 0.3% in afternoon trading, according to FactSet data, at last check.

Popular bond ETFs that focus on long-term Treasurys were also climbing Wednesday.

The Vanguard Long-Term Treasury ETF VGLT and iShares 20+ Year Treasury Bond ETF TLT were each up 0.3% during afternoon trade, FactSet data show, at last check.

Meanwhile, the yield on the 10-year Treasury note BX:TMUBMUSD10Y was down about 2 basis points Wednesday afternoon at around 3.79%, while the 2-year Treasury rate BX:TMUBMUSD02Y was down about 7 basis points at around 3.93%, according to FactSet data, at last check.

On Friday, investors will be listening closely to Powell for any hints about where the fed-funds rate ultimately could land after the Fed begins cutting rates, according to Jones.

"People really want to have an idea of where the Fed believes they're heading," she said, adding some investors anticipate that its benchmark rate may eventually find a so-called neutral level at around 3% to 3.5%.

-Christine Idzelis

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(END) Dow Jones Newswires

August 21, 2024 15:52 ET (19:52 GMT)

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