"4 Reasons the Bond Rout Was Sparked by More than Just Friday’s Jobs Report"

From Barron's:

The February payrolls report was good — 295,000 new jobs were created last month, up from 257,000 in January.

But was it good enough to spark such a major plunge in bond prices? The yield on the 10-year Treasury note hit a high of 2.24% on Friday, a 6% one-day spike.

No, the bond market response has been “magnitudes stronger” than you’d expect from the headline numbers, says Sam Diedrich, portfolio manager of fixed income and macro strategies for Irvine, Calif. investment firm PAAMCO.

“It’s a real reshuffling of risk,” he says. “The markets were positioned as if rates would stay low all year.”

The explanation? Diedrich points to several news events in the past 24-hours  – aside from the payrolls report — that made bond traders think it is more likely the Fed will raise rates in June or September. Here are four:

1) Williams’ speech. Federal Reserve Bank of San Francisco President John Williams said Thursday night  that mid-year could be a good time for a rate hike. He’s a voting member or the Fed’s rate-setting committee and is believed to have Fed Chair Janet Yellen’s ear.

2) Oil prices fall anew. Economists have worried that the massive drop in crude that began last year was possibly due to fall-off in demand for oil. But inventory numbers from the Energy Information Institute this week prove more than ever that a supply glut is at work. That will take a long time to work off and means prolonged low oil prices, which stimulates consumer spending....MORE