Bond Yield Rises, Ignoring Weak ADP Payrolls Report

The 10-year Treasury bond yield rose yesterday and today on mostly upbeat employment indicators. Yesterday, the JOLTS report came in stronger than expected. In addition, initial unemployment claims edged down, according to yesterday's report. Today, the Challenger report showed a drop in layoffs. The bond market chose to tune out the uptick in continuing unemployment claims in yesterday's report, and it also ignored today's weaker-than-expected ADP payroll report.

We are inclined to agree with the bond market's current assessment: The labor market remains relative strong. The bond market clearly won't ignore tomorrow's employment report, especially if it is surprisingly weak. If it is weak, though, we doubt that it would change our minds because we view the current slowdown in economic activity as just a first-half-2025 soft patch. We still expect that the tariff issue and geopolitical worries will weigh much less on the economy during the second half of this year. The record highs in stock prices confirm our outlook and also increase its probability of panning out, by providing a very positive wealth effect on consumer spending. Low gasoline prices provide another tailwind for consumer spending.