Goldman: Strong Jobs Report Set Firmer Foundation For Higher Yields

Goldman Sachs note that "despite price action in the latter part of last week, including a decline in yields following the jobs report, we think the data provide a stronger underpinning for higher rates going forward. Nonfarm payrolls rose 531K, above consensus, and was accompanied by solid upward revisions for the prior month alongside a drop in the unemployment rate to 4.6%. Our economists believe that falling infection rates and the end of enhanced federal employment benefits likely contributed to the gains and leave the labour market on track to continued rapid improvement. As we've noted in past reports, we think this improvement in the cyclical position of the economy is likely to be the dominant factor determining yield levels, which our analysis suggests should be higher given our economic forecasts."

• "What explains the move lower in yields then? In our view, a large part of the decline is global in nature; our spillover framework (based on Rigobon, 2003) suggests that much of the bearish impulse to global sovereign debt originated in regions where markets anticipated a hawkish shift by central banks, and much of the reversal has come from the same regions as well - with the BoE meeting proving a major catalyst. Once flows related to this global dovish reassessment abate, future progress on the labor market front (and potentially the passage of the fiscal package currently under discussion) should in our view reset yields on a path higher."