This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Global Macro: Jobs Report Hits Bonds

NEW YORK ( TheStreet) - Employment data, released Friday, gave much needed direction to global financial markets that had remained range-bound and volatile since the Federal Reserve hinted at a premature end to its quantitative-easing program.

Bond markets reacted sharply to the news, pushing yields a few basis points lower. U.S. equities rose around 1%, and now through the use of intermarket analysis, we can take a closer look at the developing trends in fixed income.

The pair below is of S&P Equal Weight ETF (RSP) over Investment Grade Corporate Bond Index Fund (CORP). It measures investor sentiment on the current economic climate.

As equities raced higher in late 2012, U.S. stocks outperformed corporate debt, signaling strong investor sentiment. The pair briefly consolidated beginning around May 22, the day Fed Chairman Ben Bernanke testified in front of Congress, but has since rushed toward upper boundaries based on the view that the Fed will continue its stimulus efforts. Economic data remain light next week, giving this pair room to move higher.

The next pair is of Barclays 1-3 Year Treasury Bond Fund (SHY) over Barclays 20 Year Treasury Bond Fund (TLT). It measures the curvature of the U.S. yield curve.

Short-term Treasuries outperform long-term ones during times of economic expansion, resulting in a steeper curve. The chart below shows a consolidation of price action leading into the jobs data last week.

Although the pair looks to have broken higher above support, it is still somewhat suppressed, due to the gradual nature of the U.S. recovery. The curve will flatten when the end of monetary easing becomes more definitive, but until that point, the pair should drift higher.

The last chart is of Barclays TIPS Bond Fund (TIP) over Barclays 7-10 Year Treasury Bond Fund (IEF). The pairing signals inflation expectations.

As inflation has become less of a threat, commodities and export-driven economies, such as China, have shown profound weakness. The price action has also left some Fed officials proclaiming that stimulus efforts are a long way from being pulled, and the U.S. could see even more loosening in order to drive inflation higher.

European and Chinese inflation data will be released this week, but based on the pair below, the data may come out below expectations.

Central-bank easing across the world has aimed to defeat low inflation, but until growth in demand returns, investors have no reason to fear rising interest rates.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CORP $104.44 0.10%
SHY $85.04 0.04%
TLT $130.52 0.29%
RSP $78.76 0.24%
TIP $114.79 0.10%


Chart of I:DJI
DOW 17,691.94 +40.68 0.23%
S&P 500 2,055.03 +3.91 0.19%
NASDAQ 4,734.1640 +8.5250 0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs