The 10 year Treasury auction today featured solid demand, with the yield hitting 2.46% with the index briefly nearing 2.50%. This puts the 10 year Swap at about 2.60%. Why? (1) Continued positive economic reports, the JOLTS report (Job Openings and Labor Turnover Survey) indicated spikes in jobs available (15 year high) and workers quitting jobs. Fed Chair Yellen is known to be a close watcher of this report and many interpret these spikes as symptomatic of a robust job market. It shows workers are confident enough to quit and look for a new job and employers may have to “up the ante” to attract workers, wage inflation is considered a key element in the Fed’s rate increase decision. This is on the heels of May’s strong jobs report; (2) The dollar may have peaked against other currencies, this helped the stock market rally today as a cheaper dollar helps US exports, but it weakens demand for dollar denominated US Treasuries; (3) Europe – the recent inflationary indications and global bond selloff pushed the 10 year German yield above 1.00%. Also, another Greek debt extension is near (kicking the can or solving the problem? There is no sense of immediate panic for investors to rush into Treasuries). Consensus now is the Fed will raise twice this year, September and December. The next key technical level is 2.55% on the 10 year. This puts new CMBS 10 year loan rates at about 4.50%, still historically low but moving up…..stay tuned… David R. Pascale, Jr.
