Morning Notes — Jobs, Real Yields and Tech Multiples

Longer-dated bonds (10+ years) have declined since the spike in US April CPI data on concerns for a Fed policy mistake.  Real yields (nominal yields minus inflation) have declined much faster than nominal yields, leading to growth/Tech sector multiple expansion.  The Fed has been consistent in messaging its expectations for pricing pressures to be transitory.  The Fed has also been consistent in its desire to taper asset purchases once labor markets improve.  Nonfarm payroll employment has increased by 15.6M since last April, which is only 6.8M (4.4%) below the pre-pandemic peak in February 2020.  Today’s payroll beat keeps Fed tapering expectations on track for late this year, but the easing of labor market constraints in coming months has the potential to pull tapering expectations forward.  If nominal yields rise due to Fed tapering and inflation expectations decline, real yields will rise and growth/Tech multiples would likely contract…quickly.