On Jan 6th I wrote, “the US Treasury market/interest rates hold the key to stock market performance this year.” With the better than expected private sector payroll gain in Friday’s data (yes, partly weather bounce back), including revisions, this thesis and tug of war will be put to the test now as the 10 yr note yield is matching the highest level since Oct ’08 and the 30 yr bond yield is at the highest since Oct ’07. Commodity prices are also rising in response to the jobs data and the implied inflation rate in the 5 yr TIPS is rising to a 6 week high at 2.22%. This backdrop comes ahead of $82b of notes and bond supply this week as the Treasury auctions off 3’s, 10’s, 10 yr TIPS and 30’s and is possibly the biggest test of US issuance since this credit/economic crisis began. Following the solid ISM manufacturing number last Thursday, the ISM services report is out at 10am and expectations are for 54.
