Virus: Markets couldn’t care less about jobs

In ordinary times, February’s US jobs data would have been labeled as nothing short of a blowout. Treasury yields would have climbed, with the expectation that the Federal Reserve would leave interest rates alone and let the labor market run hot, reviving dormant inflation.
Needless to say, these are far from normal times.
US payrolls surged by 273,000 in February, easily beating the median estimate in a Bloomberg survey of a 175,000 gain, according to a Labor Department report. The prior month’s 225,000 advance was also revised upward by 48,000, to 273,000. Even the manufacturing sector unexpectedly added jobs.
Average hourly earnings rose 3% from a year ago, meeting expectations, and the unemployment rate dipped to 3.5%, matching a 50-year low. Strong across the board.
That didn’t matter to traders in the world’s biggest bond market — their world had long since changed, thanks to the coronavirus. The benchmark 10-year Treasury yield, which was already lower by almost 20 basis points, barely budged at 0.75%. Two-year yields remained below 0.5%, indicating little change in expectations for the Fed to further reduce interest rates at its upcoming meetings. And 30-year Treasuries were barely thrown off from their breathtaking rally that has pushed their yields down to 1.3%.
Now, this report was always going to be somewhat inconsequential because the first round of figures only use data though the middle of the month. Here are the specifics from the Labor Department’s website:
CES begins collecting sample reports for a reference month as soon as the reference period — the establishment’s pay period that includes the 12th of the month — is complete. Collection time available for first preliminary estimates ranges from 9 to 15 days, depending on the scheduled date for the Employment Situation news release. The Employment Situation is scheduled for the third Friday following the week including the 12th of the prior month, with an exception for January.
Obviously, the world has changed since the week that included February 12. One week after that date, on February 19, the S&P 500 Index set an all-time high. Less than two weeks after that, on March 3, the Fed delivered its first inter-meeting interest-rate cut since 2008 to stem a market collapse, causing the benchmark 10-year Treasury yield to fall below 1% for the first time ever. On March 6, the global outlook remained very much in question due to the spreading coronavirus. Wall Street’s stock investors have simply admitted “we don’t know what’s going on.”
Bond traders have long been pessimistic about the outlook for the world economy. Treasury yields fell throughout 2019 even as equity markets hit new highs, with investors widely expecting steady — if unspectacular — growth. A broad swath of the Fed’s primary dealers predicted the 10-year yield would end 2020 in a range of 1.5% to 2.25%. On February 12, it remained comfortably tucked into the lower end of that range, at 1.63%. It’s in uncharted territory now.
—Bloomberg