Market volatility has intensified as financial conditions tighten and global central banks pursue monetary policies to combat persistently high inflation and maintain financial market stability.
US Nonfarm payroll employment rose by 311,000, beating expectations calling for a 225,000 increase in jobs for the month of February. The leisure and hospitality, retail trade, government and healthcare sectors saw the largest gains. The unemployment rate ticked up to 3.6% due to more workers entering the labor force as the participation rate increased to 62.5%, the highest level since March 2020. Workers between the ages of 25 and 54 led the expansion, with significant gains for women and minorities who comprised a disproportionate amount of the job losses during the pandemic. Over time, more workers in the labor market should help ease inflationary pressures. Average hourly earnings were up 0.2% month-over-month, the slowest increase in a year, and rose 4.6% on a year-over-year basis, primarily driven by the service industry. In other labor market news, the Job Openings and Labor Turnover (JOLTS) survey fell to 10.8 million, but remains elevated, and initial jobless claims edged up slightly to 211,000.
Ten-Year and Thirty-Year Treasury notes traded with a yield in excess of 4% this week, moving back above yield levels not seen since November 2022. Market sentiment has shifted as the disinflation theme prevalent at the beginning of the year is dissipating with the resilient economic data thus far in 2023. The Chandler team continues to hold the view policy rates will rise to a sufficiently restrictive stance and stay on “hold” for the balance of 2023 to allow the tightening of financial conditions, notably exhibited via the increase in real interest rates, to work its way through the financial system and put downward pressure on inflation. Given the Chandler team’s view on the trajectory of monetary policy, we continue to believe the interest rate differential between the Fed Funds rate and the Two-Year Treasury note should be relatively tight. Given the 70 basis point move higher in the Two-Year Treasury note yields between January 31st and today, to a yield around 4.90%, the market is coming around to our view.
