The fixed income complex saw further losses following the September jobs report which showed that the US economy added nearly twice as many jobs than consensus expectations. Additionally, July and August payrolls were revised higher by a cumulative 119,000. In concert, this data refutes the notion that the jobs market is losing momentum.

The heaviest losses were felt in longer duration bonds, while shorter duration notes had mild weakness. This is a continuation of the major trend of the last couple of months which has seen the yield curve flatten due to a breakout in longer-term yields to the highest levels in 16 years. The major impetus for this move is the market reducing the odds of a recession and rate cuts in 2024 given that the economy has performed better than expected, while inflation has seemingly plateaued at high levels. 

The bullish case for fixed income rests on the economy or inflation rolling over. In terms of the economy, there certainly is evidence of decelaration but nothing to indicate sufficient contraction that would cause the Fed to pivot. Regarding inflation, there are some positives with moderation in wage growth and rents, however this has been offset by rising energy prices and concerns that the autoworkers strike will lead to an increase in used and new vehicle prices. 

Finsum: Fixed income was down following the September jobs report which was surprisingly positive further reducing the odds of a recession in the first half of 2024.