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TD: Jobs Miss A Goldilocks Report for Fed Officials

US OUTLOOK/OPINION
  • TD note the "April payroll report was unambiguously positive for the rates market. The below-consensus reading plays right into Powell's pushback on rate hike expectations, which suggested the market was getting extreme in its level of hawkishness.
  • "The softer than expected 175k headline reading, -22k revision to last two months, weaker 0.2% wage print, and an increase in the unemployment rate to 3.9% suggest an unambiguous bull steepener for Treasuries."
  • "We continue to favor cautiously buying dips if rates move toward the upper end of recent ranges and remain in 5s30s curve steepeners. We also continue to hold 5y swap spread wideners and 30y swap spread tighteners in our model portfolio."
  • "For now, the Fed will remain patient on the policy front, as was expressed by Chair Powell on Wednesday. Higher for longer is the policy of choice for now, and upcoming data will determine new changes to that stance, particularly the evolution of consumer prices."
  • TD remains "optimistic that the Fed will first ease rates at its September FOMC meeting as we look for core PCE inflation to gradually moderate by then to a monthly pace that is consistent with a return to the inflation target."
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