US Treasuries Soar As Job Growth Slows | Real Yield 8/1/2025

Labor Market & Economic Outlook - US labor market shows warning signs with payrolls tumbling and unemployment rate rising, indicating a deceleration in job gains [1][2] - Concerns mount over a complicated mix for the Federal Reserve to deal with, leading to expectations of potential rate cuts in September and December [2][3] - Slowing services wages suggest a potential slowdown in consumption and the overall economy, justifying lower interest rates even without a formal recession [19] - The economy is structurally sound, but current policy may be suboptimal, with rates disproportionately hurting lower-income households as housing and labor markets slow [9][10] Interest Rate & Monetary Policy - Fed rate cut bets for September have reached nearly 90%, a significant increase from 45% prior to jobs data, with two rate cuts priced in for the year [6] - The Cleveland Fed President acknowledges a tricky time for monetary policy makers due to conflicting mandates, requiring careful data analysis and business conversations [7][8] - The market anticipates bull steepening as the economy slows and the Fed cuts rates, potentially spurring inflation or growth, leading to a V-shaped recovery [12] - Neutral rate is difficult to determine, potentially higher than expected due to shifts in household and business debt structures, allowing for higher interest rates with a robust economy [17][18] Bond Market & Credit Issuance - US high-grade weekly volume reached $12 million, driven by foreign bank sales, while July volume was $81 billion, the lightest month for supply this year [29] - US high-yield July volumes exceeded $35 billion, marking the second busiest month since September 2021 and the busiest since at least 2006 [30] - Leveraged loan launches in July set a record, reaching over $222 billion, the fourth time in 14 months an all-time record has been broken [30] - Private sector holds $225 trillion in cash, exceeding marketable Treasury debt, with only $29 trillion in high-quality bonds, creating a transcendent influence on the market [26][27]