What the Bond Market says about Friday's Employment Report

What is the Bond market telling us about Friday's employment data?

The bond market has fallen hard in the first few days of this week ahead of Friday's employment data, but this data caused the stock markets to turn sharply higher last time that economic data was released.  The last employment data release pleased the stock market because it showed a rebound from the weak employment report that preceded that, suggesting that the weakness from the earlier release was temporary and employment trends were still well intact.

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However, there was also plenty of wiggle room between then and the June FOMC meeting.  That meeting is scheduled for June 17.

Let's quantify what has happened in the bond market in recent days, ahead of Friday's Employment data.

iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSEARCA:TLT) is down by about 3% since Friday

ProShares UltraShort Lehman 20+ Yr(ETF) (NYSEARCA:TBT) is up by about 6% since last Friday.

Literally, these massive moves int he bond market have happened within a few days, but massive moves in the bond market have not been completely unusual this year.  Still, they are eye-opening, and the timing of this move is telling us something about the upcoming employment data.

Specifically, it is telling us that the employment data will show an employment situation that remains on track, and therefore suggest that the FOMC should also remain on track with their intention to raise interest rates.  There is a debate w/re to the timing, but if the data shows steady Job Growth on Friday, which the bond market tells us it will, the chances of a June Rate hike will be extremely high.

In turn the bond market may be already telling us that the chances of a June Rate hike have increased significantly.  Because there is far less wiggle room between Friday's employment data and the June 17th meeting, the chances of a market rally on the heels of Friday's presumably good employment data are far less than they were last time.

Importantly, Greece will also play a role in Friday's action (they need to make a bond payment), so the economic data is not the only game in town, but it is the most important according to the bond market.

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