The selloff in bonds continued this week; the 10 year Treasury hit a 2015 high today, over 2.25%. Today’s weak ADP report indicated lower than expected US job creation for April combined with a very weak productivity report (the past 2 quarters were the weakest since 1993, the last time 2 quarters were negative was in 2006). These reports would usually cause yields to drop as they would signal to investors that rate increases are less likely in the near future. Instead, the continued weak demand for treasuries demonstrate how recent low yields here in the US were influenced by ultra low and negative European bond yields. Now European yields are rising – German 10 year Bond up to 0.61% today after drifting near negative territory 2 weeks ago. This has contributed to a weakening US dollar and less demand for Treasuries. Interestingly, the US Treasury faced “direct” competition today from large bond offerings from Apple Computer and Royal Dutch Shell, two of the strongest corporate credits in the world. Treasuries should “drift” over the next day, as focus will be on Friday’s April jobs report, the first major data point for the 2nd quarter…stay tuned… David R. Pascale, Jr.
