‘Hot’ Jobs Number Pushes Interest Rates Higher

I am not certain why markets have decided today to pay attention to the jobs number which showed 467,000 new jobs being created. Given that the BLS raised Decembers number by 300,000 from the previously announced number of 199,000 we know there is no reliability in the numbers. Oh well just another government number which at the least gives Chair Powell ‘cover’ for an initial interest rate hike.

The 10 year treasury popped to 1.91% with the news which matches the high in December, 2019. We’ll see if we get the typical drift down in rates or if they hold and shoot higher.

A survey of our accounts yesterday shows the same pattern–dividends and interest received and capital lost–although the net number isn’t too bad. I have not bought or sold anything at all in a few weeks–content to try to stay in mostly term preferreds and baby bonds with shorter maturities. I do hold some perpetuals–in limited numbers, which has been somewhat costly–but I continue to hold them.

23 thoughts on “‘Hot’ Jobs Number Pushes Interest Rates Higher”

  1. https://schrts.co/CuZbtxxs

    Fed – the fed has always made a policy error in the past and expect they will again this time. With the big drop in govt. support compared to last year and inflation acting as a tax on everyone, now the fed will raise rates and reduce their balance sheet surely reducing GDP this year. Fed fund futures are pricing in 5 rate hikes this year last I looked. I’ll take the under on that. Keep your eye on the yield curve. Every time the fed starts hiking the 2 year rises faster than the 10 year which eventually causes it to revert. If that happens I will be cashing in my chips. ATB

  2. Aerial view, Im personally not getting the warm fuzzies hunting for income.
    You have oil still rising which filters through everything (remember the old “fuel surcharge” add on fees?)… You have rents rising… You have wages rising. I have a union GF and they have been getting 2% colas. You think 2% will fly when this contract expires, and the negotiations begin for the next one?
    But the 1940s proved rates can stay way under inflation for years on end.
    Yields are no where near normal in context of general historical inflation rates, and economic growth. Will present situation change? I dunno…
    If I am going to play the game the best I can do is minimize capital losses long term by having term dated, live floaters, and resets in the fold. But they will get swung around by equity markets, also.
    My two most prized investments are WTREP and IBONDS. They both are getting 7% plus. One you cant lose capital owning it and its backed by US Govt, and the other you cant lose capital because its trapped in an untradeable hell hole, lol.

    1. I stepped out of character and started trading USO (oil) recently. After dropping to 48 it’s now at 65.

  3. #1 on my To Do List for this weekend is to study Tim’s $25/Share Master List. Prices are getting interesting, but the price of oil complicates matters. Thanks again Tim.

  4. The massive upward revision on the December jobs number makes me think there’s something shady going on for political reasons (same thing Obama did). Even Steve Liesman on CNBC this morning said he’d never seen anything like this in his career. I’d agree, it’s all hocus pocus at this point.

      1. When I saw your 13 likes I realized this is a very left wing leaning site. No doubt about it.

        1. Why do you keep agitating? This is a no politics site regardless of how individual membership leans.

        2. I don’t think so, Chuck P.
          Perhaps many people, like me, are here for information, rarely comment, and definitely don’t click the like or dislike button. I
          have followed Tim from his ‘Yield Hunter’ days and the only
          thing that bothers me is how ‘expensive’ this site is to use.
          Just kidding.!
          PS: I guarantee I am not politically ‘Left’.

        3. How ever leaning THIS site has:
          1) Made me money, is still making me money…cash dollars…
          2) Been a good source of real knowledge, esp when I really needed it.
          3) Always been a safe and friendly space to ask and seek answers and when possible provide my knowledge as answers to real structural strategy regardless since EVERYONE likes to eat.
          4) Is neutral in blather.
          Oh yeah…is still FREE., not even a banner ad. Thanks Tim!

    1. Spoken like a true expert in labor market modeling….
      BLS models have been blown up by a variety of factors, starting with COVID lockdowns, and the change in reporting of unemployment benefits by certain states because of statutory changes.

  5. Considering that floating rate perpetuals are being sold off too, baby is being thrown out with the bath water.

    1. There’s definitely blood in the streets. I always wonder just who these people are that are in full panic mode and selling at a loss lol. Seems like there’s a never ending supply of them.

  6. As rates have risen, lower yield issues have been taking the expected hit. The problem with that is that the differential between higher and lower yielding issues in a group (same issuer) has been declining. That makes it harder to swap issues within the group as well as diminishes the attractiveness of long/short pairs.

    1. Ken:

      Perhaps it will be 50 basis points in March, but the Fed can only raise rates so far. Barron’s ran a story claiming that every 100 bps increase in the Federal Funds rate would increase the interest the U.S. Government pays on its debt by $280 Billion.

      300 bps causes nearly $1 Trillion in additional interest costs on $30+ Trillion of debt. It would truly cause massive havoc over the entire annual Federal budget. The US government only takes in $4+ Trillion in annual revenues.

      I follow one investment guy who is adamant that the Fed is going to be doing most of its hiking into an economic slowdown. Once the inevitable recession hits, all these crazy prices for oil, gas, rent, food, etc. will start to recede – and interest rates will follow them down. We may have to deal with some stagflation for awhile.

      But that is a scenario for another day!

      1. “300 bps causes nearly $1 Trillion in additional interest costs on $30+ Trillion of debt”

        What? this statement makes no sense. It assumes either:
        1. All Treasury debt is floating rate where the increase in rates flows down 1 to 1 to Treasury interest.
        or
        2. that the entire 30 Trillion is rolled over each year into new debt

        But neither of those statements are true. The 300 basis points would impact only NEW debt, which is far smaller than $30 Trillion and already existing longer dated debt wouldn’t see the additional interest until they matured. and were replaced by new bonds, which could be 5, 10 or 30 years from now.

        1. Justin:

          I understand your math and thought the same thing myself when I read the article, but this is from portfolio manager Scott Black (who is very good) in a recent “Roundtable” issue of Barrons:

          “Jerome Powell, the current Fed chairman, did a good job two years ago in responding to the Covid pandemic and economic shutdowns. But inflation is now running close to 7%, the highest it has been since the early 1980s. The Fed’s failure to control it is going to have a deleterious effect on the market.

          “At the time of the financial crisis, the Fed’s balance sheet was about $850 billion. Today, it is $8.8 trillion. The national debt has surged to $29 trillion, and the debt-to-GDP ratio is close to 1.3 times, both all-time highs. The Fed was reluctant to raise interest rates sooner because it feared killing economic growth.

          Also, higher rates raise the interest expense on the national debt. Every one-percentage-point increase in rates adds about $290 billion of federal interest expense, so the Fed had an incentive to cap rates at today’s very low level.

          Given the current rate of inflation, the 10-year Treasury theoretically should yield closer to 3.5%-4%, not 1.8%. That would add $580 billion of interest costs to the budget, and the country would have no money left for discretionary spending. So, the underpinnings of the economy are pretty good, but high inflation doesn’t bode well for the market.”

          1. How about the Federal Funds rate goes to 7.0%? That way retirees can eat tuna fish instead of dog food. At 4% we are still at a net effective yield of -3%. Keeping the Funds rate at 3.5-4% is basically a tax on the American Public. Never trust the Feds

            1. Max:

              Here is a fantastic article on SA today from Lynn Alden (she writes very long articles and is amazing):

              https://seekingalpha.com/article/4484812-does-the-national-debt-matter

              “At $32.5 trillion in debt which we will get to in a couple years, every 1% of average interest rates on that debt (across weighted-average maturities) equals $325 billion per year in interest expenses.

              So, if interest rates on government bonds are 3% on average, they would be paying almost $1 trillion per year in interest alone. As such, the Federal Reserve is somewhat limited in terms of how high and persistently it can raise interest rates without causing the federal government to encounter a fiscal spiral, where their deficit blows out even further due to issuing debt just to cover the interest on existing debt.”

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