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Risk Appetite Improved Following Strong April Employment Data

US TSYS
Treasury futures remain weaker after the bell, drifting near the middle of a wide session range after stronger than expected April employment data took some of the hot air out of rate pause/cuts expectations.
  • Treasury futures marked session lows after stronger than expected April jobs gain of +253k vs. +185k est: TYM3 hit 115-13.5 low, 10Y yield initially hit 3.4521% high before tapping 3.4635% around noon - is currently at 3.4351% +.0564.
  • April's headline household survey stats included the labor force contracting by a modest 43k (of 166.7M), with the participation rate unchanged at 62.6% (including - as we noted earlier - a fresh post-2008 high for prime-age participation). A strong if slightly odd breakdown in the unemployment rate figure though, which was down 0.1pp to 3.4%.
  • Treasury futures quickly recovered to near mid-range, trading sideways for the rest of the session. Risk appetite improved as stocks, lead by regional banks (PacWest rallied over 80% this morning!), rallied (SPX eminis +78.25 at 4154.0).
  • Fed Funds implied rates are holding close to earlier highs post-payrolls with Bullard supporting them. Now showing zero cuts for the June FOMC (+3.5bp on the day), 10bp of cuts to 4.98% July (+7bp), 26bp of cuts to 4.82% Sep (+11bp) and building to a cumulative 75bp of cuts to 4.33% Dec (+15bp), with the latter from 85bps pre-payrolls.
  • Slow start to next week, focus is on CPI read for April on Wednesday, while President Biden and House speaker McCarthy are expected to discuss the debt limit on Tuesday.

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