First, we head into the (delayed) September payrolls report on Thursday with the market in a very tolerant mood for a weak number. Normally, if there was a market expectation for a number of about 50k it would be a huge miss relative to the clearing number of 150k. But that clearing number is acknowledged to be lower now, partly on account of supply-side shocks being applied to the labour market.
Also, with a new Bureau of Labor Statistics head in place (post the firing of the former one), there is likely a tendency to come out with a conservative estimate for employment numbers, to avoid the downward revisions that have plagued previous versions. This Treasury market would take a 50k jobs growth number all day long as indicative of an economy that’s remaining reasonably resilient (even if deemed vulnerable). At the margin, this is a bearish impulse for Treasuries.
Second, the release of the payroll numbers for November has been delayed till after the December FOMC meeting (incorporating October). This gives the Federal Reserve an out to skip a rate cut, due to the “fog” as described by Chair Powell. The FOMC minutes from the previous meeting note that many members are not sold on the December rate cut, but that’s no surprise, as that is as Chair Powell explained at the press conference from that meeting.
Overall, the Treasury market has chosen to trade quite heavy through the “driving through the fog” period, typically being more responsive to firm data than to weak data. So, at the margin, this is also bearish for Treasuries.