The bond market appears to be signaling the worst is over for the economy

The bond market has caught a tiny bit of the stock market’s optimism, and it’s selling off on the idea that the economy may have hit rock bottom in April.

Bond yields, which move opposite price, have been edging up, and on Wednesday they made a significant move higher off their relatively low base. The benchmark 10-year Treasury yield, which influences mortgages and other loans, rose to 0.77% from just under 0.70%. The 10-year was at 0.757, its highest level since April 13.

ADP’s private sector payrolls showed 2.76 million jobs were lost in May, while economists had expected to see more like 9 million lost jobs. The report is not an accurate guide to the government’s monthly employment report but it is watched for clues.

The May employment report is due Friday and is expected to show about 8.33 million jobs were lost and unemployment rose to 19.5%, according to Dow Jones. Some economists could revise their estimates after the ADP report, and Goldman Sachs economists said they will release their forecast after the weekly jobless claims report Thursday.

As yields move higher, the yield curve has also been steepening. That means the spread between the shortest duration securities and the longer duration notes and bonds is widening. It is the opposite of the so-called flattening yield curve which signals a worsening economy and recession.

The bond market has been mired at very low yields, in part because the Fed has set its target rate at zero, and also because of fears the economy will have a hard time getting out of the deepest and most rapid recession in history. The Fed is also actively buying Treasurys and other securities, which has been keeping rates low.

The 10-year yield’s move higher took it out of a range that it’s been at since April 16, when it rose above 0.74% Wednesday.

Stocks also were sharply higher Wednesday, with the S&P 500 up 1.4% at 3,122. Since bottoming on March 23, the S&P has rallied more than 41%. The 10-year yield, however, was at 0.79% on March 23, and it has gone lower as the stock market moved higher, reflecting a negative view.

Stocks have rallied on the prospect of new vaccines, but the bond market has mostly ignored that news.

U.S. yields have also been rising as German bund yields have moved up, on the prospect that the European Union will agree to a fiscal stimulus package, and ahead of the European Central Bank meeting Thursday. The German 10-year was at minus 0.35%, and it often moves in tandem with the U.S. 10-year.

The bond market appears to be signaling the worst is over for the economy, CNBC, Jun 4