Rising Yields in Bond Market
Yields in the domestic bond market have risen by a significant margin over the past month. In the middle of 2016, the spread between the 10-year t-bond and 2-year t-note was 76 basis points (St. Louis Fed). The latest spread as of Monday, December 5th was 126 basis points (St. Louis Fed). This widening in the yield curve should give fixed income investors greater room to capitalize on increased yield.
This rise in long term interest rates could boost the financial sector, but it does put pressure on prices on fixed income securities in the short term. One of the prevailing indicators, Barclays Aggregate Bond Index, has seen this shift in the yield curve over the past month. The Barclays Aggregate decreased 2.47% over the past 30 days (Bloomberg). This is the largest short term market decline in five years (St. Louis Fed). Although this jab to the gut for conservative investors is justified, there is potential opportunities in the future shifting towards higher grade investments with greater flexibility to move in fluctuating market environments.
Unemployment at 4.6%, but what’s the Catch
As 2016 is winding down to a close, the United States labor continues to have a “Jekyll and Hyde” type mentality. The Dr. Jekyll in this economic story is the continued improvement with low unemployment and growth in hourly wages. This rosy 4.6% number will catch the headlines for the quick sightseer, showing the robustness of the United States workforce, but if we peer beyond the surface of this Unemployment report, then the details show the insane “Mr. Hyde” covering in the shadows of the labor outlook.
Labor force participation continues to be the prevailing shadow for the United States labor force. As of the release of the Employment Situation by the Bureau of Labor Statistics, labor force participation is at 62.8 percent (Bureau of Labor Statistics). This has been steadily decreasing over time with an aging baby boom and gen-x workforce, so the question going forward for unemployment does the prevailing demographics favor a robust workforce in the future? The current answer is likely no, for now. We are still seeing constants for average number of hours worked at 34.4 hours/week (Economics). Although a constant number of hours work is positive today, the millennial workforce alter ego of Mr. Hyde needs to seamlessly integrate toward its genuine Dr. Jekyll personality to effectively contribute to future US labor market.
Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Sarah Berndt, Portfolio Manager
Eric Kartman, Research
Drew Steinman, CPA, Trader/Research
Frank Echelmeyer, MBA, CKA®, Advisor Consultant
-for Broker/Dealer and RIA use only-
Bloomberg. Barclays US Agg Total Return. 7 December 2016. 2016.
Bureau of Labor Statistics. The Employment Situation- November 2016. 2 December 2016. 2016.
Economics, Trading. Trading Economics. Aug 2016. Aug 2016.
St. Louis Fed. 10 Year Treasury Minus 2 Year Treasury. 7 December 2016. 2016.
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