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By G. Steven Bray
Bond markets seem to be stuck in the summer doldrums. Either that, or everyone is on vacation. Rates really haven’t moved much in the last couple weeks, and there doesn’t seem to be a lot to accelerate movement in the offing.
This is a jobs report week, and that usually would have markets on edge. However, job growth has been pretty steady all year. Markets will probably shrug at another solid report, and other economic indicators aren’t suggesting a weak report.
The one economic indicator that does seem to have the markets’ attention is inflation. That makes the wage growth component of the jobs report worth noting. However, the Fed’s favored measure of inflation, the PCE index, matched last month’s figure of 1.5%, still well below the Fed’s target of 2%. That suggests wage growth won’t likely be the surprise that makes rates move.
Congress is heading for vacation soon, and that will remove that source of inspiration until Labor Day. I suppose it’s still possible, but I think highly unlikely, that Congress will accomplish something meaningful in the next month. If anything, I think it’s more likely the lack of action will help keep a lid on rates as markets grow increasingly nervous about all that awaits Congress in Sep.
On the horizon, we have the Federal Reserve meeting in Sep at which the Fed is expected to put in place its balance sheet reduction plan. As we’ve noted before, this is a source of negative inspiration for rates, and it could magnify the effect of any headlines that pressure rates upwards. I don’t think floating is unreasonable at this point, but pick a bail out point if rates start to climb.