Another hot jobs report could also pressure the Federal Reserve to raise interest rates again in October
Treasury yields appear ready to break out and surge even higher.
The coming week will be big for the bond market from an economic-data standpoint, with the release of the August PCE report and the September jobs report. With yields on long-dated Treasury notes and bonds at levels not seen in two decades, the economic data could determine whether rates rise even further.
The 10-year BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y Treasury yields are closing in on their next major technical resistance levels, which could see them break out and surge to 5.6% and 5.9%, respectively, over the near term. And with expectations for the jobs report fairly low, it may not take much for them to reach those levels.
Analysts' expectations
Analysts are forecasting the August headline personal consumption expenditures price index to rise 0.4% month over month from 0.2% in July, while remaining unchanged at 3.7% year over year. Core PCE is expected to rise 0.3% month over month from 0.2%, remaining unchanged at 3.3% year over year. The PCE reading is unlikely to cause much trouble for markets, as analysts seem to have a good handle on it, basing their estimates on the consumer- and producer-price index reports from earlier in September.
The jobs report, however, may pose a bigger problem. Analysts expect to see only 100,000 jobs created in September, down from 162,000 in August. Meanwhile, the unemployment rate is expected to remain unchanged at 4.1%.
The report that unsettled the market was the S&P Global U.S. PMI report on Sept. 23, which noted that employment, by S&P Global's measure, rose in September at its fastest pace since June 2022 and at a pace rarely exceeded since 2009. That commentary suggests the risk to September jobs could be higher than what analysts are estimating.
Currently, the 10-year Treasury yield is floating at 5.2% and sitting just below an area of technical resistance at 5.25% that dates back to July 2007, which could be a delicate line in the sand. A breakout that sends the 10-year over 5.25% could see a rise to 5.6% - even to as much as 5.9% can't be ruled out.
Interest rates near a breakout
The weekly chart of the 10-year Treasury yield shows a symmetrical triangle forming over the past few years, and the 10-year has successfully broken through it. This technical pattern is generally seen as a continuation pattern, suggesting higher interest rates are on the horizon.
The one thing working against the 10-year currently is that the relative-strength index on the weekly chart has surged to almost 80, and since 2021, when the RSI has risen that high, it has led to either a short-term pullback or a period of sideways consolidation.
The 10-year yield from 1989 to 2027 and the RSI (in purple) for the same period.
The 30-year Treasury rate shows a similar bullish technical pattern, an ascending triangle, with the top resistance level at 5.35%, and the 30-year is already trading above that resistance. The chart also suggests the 30-year could rise further, perhaps to around 5.9%, and maybe even hit a high of 6.25% over time.
The 30-year yield from 1989 to 2027 and the RSI (in purple) for that period.
Like the 10-year note, the 30-year bond is also flashing overbought conditions on the RSI, with a reading of 72. However, that reading is not nearly as high as that of the 10-year, and since 2021 it has typically taken a higher reading to see the 30-year pull back or consolidate.
This will be the only jobs report the Federal Reserve will see before its next meeting, in October. Following the strong August report, a hot September reading could pressure the Fed to hike interest rates for a second consecutive meeting, particularly if August payrolls are not revised materially lower.
Michael Kramer is the founder of Mott Capital Management and a long-only investor focused on macroeconomic themes. He analyzes long-term macro trends and short-term market risk using technical analysis, fundamentals and options-market positioning. See here for further disclosures.
-Michael Kramer
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