MACRO
Treasury Yields Just Hit Their Highest Level Since Late 2023. Stocks and Gold Went Up Anyway.
A weak jobs report and a cautious Bank of Canada should have argued for lower yields. Instead, the 10-year Treasury kept climbing, breaking the pattern traders have used to explain this month's bond selloff.
FinancialMarkets.com
The 10-year Treasury yield reached 4.814% on Wednesday, its highest level since November 2023. Normally, a fresh multi-year high in long-term borrowing costs coincides with falling stock prices, as investors reprice the discount rate applied to future corporate earnings. That is not what happened. The S&P 500 rose two tenths of a percent to 7,646.70, the Dow gained about half a percent to 53,044.35, the Russell 2000 rose three quarters of a percent, and the VIX fell nearly three percent to 15.90. Gold climbed half a percent to $4,418.20, reversing the prior session's decline.
The move came the same day two pieces of new data pointed toward, not away from, a more cautious policy stance. ADP's August employment report showed private payrolls rising just 38,000, well below the 47,000 consensus and the slowest pace since January. Manufacturing shed 17,000 jobs and professional and business services shed 16,000, partly offset by gains of 45,000 in education and health services and 16,000 in leisure and hospitality. ADP chief economist Nela Richardson said wage growth has been "overtaken by the complexities of demographic change, persistent inflation, and AI's effects on jobs."
The Bank of Canada held its policy rate at 2.25% for a seventh consecutive meeting, explicitly citing uncertainty from Canada-U.S. tariffs and gasoline-price volatility tied to the Iran conflict. Canadian inflation reached 3% in July, a reading the central bank linked in part to that volatility.
A soft jobs report and a central bank choosing caution over conviction are both, on their own, arguments for lower rather than higher yields. That the 10-year kept climbing anyway suggests something other than a straightforward rate-hike story, whether term premium, Treasury supply concerns, or a broader repricing of fiscal risk, is doing more of the work than the hawkish-Fed narrative alone can explain. Friday's official employment report and the September 15 to 16 Federal Reserve meeting are the next tests of which explanation holds.