What Debt Ceiling? And Who's Lying About The Jobs Report?

After dominating the news cycle for weeks, the debt ceiling issue is suddenly resolved and the bond market doesn’t seem to care. The jobs report proved to be far more relevant, but with half of it indicating a much stronger labor market and the other half saying the opposite, who’s telling the truth and why did rates only pay attention to the bad (good) news? Let’s take one paragraph to put the debt ceiling to bed.  Last week’s newsletter went into more detail on its relative unimportance–now confirmed by the absence of any major reaction after this week’s Senate passage (and imminent signing this weekend).  The following chart is potentially confusing, but it attempts to show one line that only cares about non-debt-ceiling stuff (the green one), one line that cares a great deal about the debt ceiling (the red one), and finally, the blue line of 10yr yields to serve as a proxy for longer-term rates.  Bottom line: if the blue line correlates more with the green line, the debt ceiling wasn’t a big deal for rates. On to the jobs report!  This month’s installment showed much stronger job creation with payroll counts at 339k and more than 90k of upward revisions to the last 2 months.  Analysts were expecting less than 200k.  Super strong! This month’s installment also shows the unemployment rate ticking up to 3.7% from 3.4% last time, handily outpacing the 3.5% forecast.  Occasionally, movement like that happens when the labor force participation rate changes, but it was perfectly steady this time.  In other words, this is the opposite of super strong!
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