The 10 year Treasury has rallied this week, sending yields down to 2.16%, today’s close, after climbing to nearly 2.30% after last Friday’s strongest job report in 5 years. Treasury yields should be spiking on this news, but they are dropping, why? Look overseas, weak export report from China, a weak import report from Japan, industrial contraction in Germany. With the overseas central banks in massive QE mode and the lingering threat of deflation, overseas bond yields are dropping, with the German 10 year Bund at 0.71% (!) This makes US Treasuries “cheap” and “high yield.” Speculation continues on when the US Fed will raise short term rates. The Fed has been watching and hoping for wage inflation, which raises the well-being of consumers, retailers, home sellers, etc. Last week’s jobs report indicated a long awaited pick up in wages after several months of stagnation. Some perspective may be found in a series of reports from Southern California’s top economists were released last week as part of the Southern California Association of Government’s Economic Recovery and Job Creation Summit. The reports indicated that while job creation is positive, structural changes have occurred that are actually lowering wages for the middle class. Increased automation, overseas competition and other factors have eliminated traditional manufacturing jobs, while new job creation is in retail, food services, etc. One metric indicated that the typical manufacturing job that paid $70,000 per year is being replaced by retail jobs paying $25,000-$30,000 per year. The report called for investments in education and job training. These findings suggest that no amount of rate cutting, cheap money, etc. can make the structural changes necessary to spur new higher paying jobs. The changes will require significant action from other sectors of society…Stay Tuned…
