| Interest Rate Market Snapshot | ||||||
| Federal Funds | SOFR | 2Y Treasury | 5Y Treasury | 7Y Treasury | 10Y Treasury | |
| 4.33% | 4.29% | 3.91% | 3.98% | 4.18% | 4.42% | |
June Job Report Summary
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The U.S. added 147,000 jobs in June, exactly in line with the 12-month trend and above market expectations
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Yet private sector labor demand was soft, with government hiring accounting for nearly half the headline payroll gains
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The unemployment rate dipped to 4.1%, while wage growth slowed to 0.2% MoM / 3.7% YoY
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Underlying signals pointed to gradual softening, not collapsing: work hours fell, long-term unemployment rose, and discouraged workers increased again
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Rates are trading higher, with a July rate cut completely off the table now and the odds of a September cut falling to just 70%
SOURCE: BLOOMBERG
SOURCE: BLOOMBERG
The Good News
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The unemployment rate didn’t rise
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4.1% unemployment gives Powell some breathing room — even if it’s being artificially suppressed up by a declining participation rate
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None of the 77 economists in Bloomberg’s survey expected the unemployment rate to drop this morning
-
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Wage growth is gliding lower
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+0.2% MoM is the slowest since late 2021, and annual wage gains are now down to 3.7%, off the 4.5% highs from last year
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That slowdown offers some comfort amid tariff uncertainty — less wage pressure means lower pass-through risk
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Private hiring is orderly, not collapsing
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We’re still adding jobs. It’s that simple. Despite only 74k of the 147k jobs coming from the private sector, its good enough job growth to keep “recession” out of the interest rate conversation
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Sectors like health care (+39k), social assistance (+19k), and construction (+15k) continue to add jobs — which is what you want to see in a soft landing
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The Bad News
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The breadth of hiring was very narrow (again)
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State and local government accounted for 80k of the 147k jobs, with 63k in education alone
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To that end, Arlan Suderman pointed out an interesting caveat to this hiring too
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This was largely a seasonal quirk — school summer layoffs were smaller and occurred later than the statistical models expected, so the algorithm turned a “smaller drop” into a “gain.” This effect is likely to reverse in the next 1–2 report
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-
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Jobs in retail, hospitality, transportation — flat to negative
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These key consumer-linked sectors were flat to negative, not great for Q3 growth expectations
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Meanwhile, federal hiring dropped another 7k (now -69k from January), so yes — DOGE is still leaving a mark
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Labor force participation is falling
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The labor force participation rate fell to 62.3%, down from its 2023 peak (62.8%) and well below pre-COVID norms
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Further, long-term unemployment rose +190k, accounting for 23.3% of all unemployed — the highest since 2022
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And discouraged workers surged +256k, pushing the not-in-labor-force total to 1.8 million – masking real weakness in the unemployment rate
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Combined with this week’s JOLTS report — which showed more job openings but fewer hires — it’s clear that workers are disengaging, not just unemployed
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As ADP’s Nela Richardson put it: “Though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month”
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SOURCE: BLOOMBERG
All-in:
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This is not the labor market Powell has been hoping for, but the headline numbers are good enough to push back on Trump’s call to cut rates below 2%. So now, the ball is back in inflation’s court. If July CPI comes in soft — and tariffs haven’t shown up in the numbers — the September cut is firmly in play
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As Powell put it earlier this week: “If the labor market were to weaken meaningfully, it would be possible to cut sooner.”
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Today didn’t force his hand — but that day is coming
Rates:
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When does the market expect another next rate cut?
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July: No
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September: Maybe
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October: If not September, then yes
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December: Yes
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SOURCE: BLOOMBERG
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2-Year rates are 8-10 bps higher with 5,7,& 10-Year rates trading higher by smaller margins
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The market seemed to be anticipating a miss today, so the reaction higher after the beat makes sense – just a smaller reaction than I would have expected
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SOURCE: BLOOMBERG
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Hedging activity still heavily favors the 2 and 3-Year part of the curve and we’re trading a bit higher following the dovish repricing of rate cuts today
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Interesting to see the selloff fade into the afternoon though. Feels like we’re setting up for some sideways trading into the July 15th CPI report with markets generally comfortable leaving 2 rate cuts on the table for this year
|
SOFR Today: ~4.35% |
||
|
Vanilla Fixed Rate Swaps |
Rate |
Savings |
|
1-Year |
4.12% |
0.23% |
|
2-Year |
3.78% |
0.57% |
|
3-Year |
3.69% |
0.66% |
|
5-Year |
3.71% |
0.64% |
|
10-Year |
3.94% |
0.41% |
|
Vanilla Fixed Rate Swaps (w/ short cap) |
Rate |
Savings |
|
1-Year |
4.07% |
0.28% |
|
2-Year |
3.70% |
0.65% |
|
3-Year |
3.54% |
0.81% |
|
5-Year |
3.42% |
0.93% |
|
10-Year |
3.40% |
0.95% |
Rhetorical Question of the Day:
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More or less something that’s been in the back of my mind lately: If Powell’s replacement gets the job based on a commitment to cut rates, when does that start to get priced in? Today, the bottom of the SOFR forward curve sits just north of 3%, but Trump has been calling for cuts below 2% - I wonder who will win?
SOURCE: BLOOMBERG
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