Investors are braced for a short, bruising bout in the bond market on Friday, fearing new numbers on the pace of hiring will add to signs that the economy is slowing down.
Stock markets are closed for the Easter holiday but the bond market is open for half the day, giving those traders limited time to react after the jobs data is released. The initial moves in early trading were muted, as investors prepared to digest the fresh data.
Despite stocks settling from the fallout of the bank collapses in March, bonds have seen wild swings as investors grapple with stubbornly high inflation that has required higher interest rates to control it, and a slowing economy that has resulted from those rate increases.
The Federal Reserve is trying to slow the economy just enough to lower inflation without tipping it into recession. And investors have zeroed in on jobs as a crucial indication of how the economy is reacting to the Fed’s decisions.
If the number of jobs added in March is a lot higher than expected, that suggests the economy is still running hot and the Fed will continue lifting rates, raising costs for consumers and companies. If the number is a lot lower, investors are likely to read it as a sign that the economy is slowing more quickly and that the risk of recession is greater.
“This is a big number,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “The real question is whether the recession is already here or not and this jobs number should let us know that one way or the other.”
This week, government bond yields have dropped sharply following data showing weaker than expected manufacturing activity, fewer job openings, a slowing service sector and higher unemployment claims.
The two-year Treasury yield has fallen roughly 0.3 percentage points since Monday, to 3.83 percent, as investors bet on the economy slowing more quickly, curtailing inflation and eventually leading the Fed to cut interest rates to support the economy.
That was a big move for a market that typically changes by hundredths of a percentage point each day, and navigating the volatility has been challenging for traders, with the two-year yield swinging within a wide range of around 0.5 percentage points.
“We have broken through so many levels this week,” said Andrew Brenner, head of international fixed income at National Alliance Securities. “You don’t have these violent moves without people panicking and cutting their losses.”
