Payroll Revisions Ignored As Classic Correlations Set To Stay Broken

WHERE WE STAND – Quite a moment yesterday, for fixed income geeks anyway, with the 10-year OAT yield rising above that of the 10-year BTP.

In the market’s mind, at least, French debt is now riskier than that of Italy; you’d have been hard-pressed to find anyone who thought that was a plausible scenario even a few years ago.

Yes, BTPs trading through OATs was driven almost entirely by a roll in the benchmark OAT, to the November 2035 issue, which trades ~7bp cheaper than the March ’35 issue, and not by any sort of sizeable selling pressure in reaction to the collapse of the French government on Monday, but it’s still a significant milestone. In fact, in many ways, the eurozone’s core is now becoming its periphery, at least in terms of how govvies are trading. No wonder ECB President Lagarde is starting to worry about spreads again, though this is clearly a problem that only tighter French fiscal policy, and not another acronym crafted by the folk in Frankfurt, can solve.

If you’re not a bond market nerd, you’d probably have been much more interested in the preliminary benchmark payroll revisions released in the US, yesterday. This saw the March 2025 total payrolls level revised lower to the tune of 911k, notably above consensus, albeit in keeping with expectations for a sizeable downward revision. In any case, this is all very old and stale, and isn’t going to move the needle much, if at all, for the FOMC, with a 25bp cut later in the month still all-but-guaranteed. All the revisions tell us is that, six months ago, the overall level of employment was lower than we thought – it might just be me, but I’m not sure that information is really of any use or excitement to anyone.

If it does tell us anything, it’s that the BLS really do need to refine their data collection methods pretty damn quickly, given the scale of the revision seen both this year, and last.

More broadly, there seem to be an increasing number of people scratching their heads over the dislocations that we’re seeing in markets, as traditional correlations break down – for instance, gold is up 40-odd% on the year, at a new record high; at the same time, equities continue to bound higher, also trading around ATHs; front-end Treasuries rallying, as the long-end softens, with other DM govvies mirroring that move; and, the dollar trading broadly softer against most peers, down about 10% YTD.

That last move is the tell in terms of what’s going on. Funnily enough, it all stems from the Oval Office, not only as President Trump continues to erode the Fed’s monetary policy independence, but also as runaway fiscal spending continues, the Admin seek to re-order the global trading system, and the monetary policy backdrop turns increasingly dovish.

When you take all that into account, those market moves suddenly start to make a lot more sense. Yes, the correlations are unusual. But, so is the macroeconomic environment, and so are the policy choices that continue to be made, as government spending runs away with itself across DM, rate cuts resume stateside, inflation risks remain tilted to the upside, and a potential economic re-acceleration looms now the initial trade/tariff uncertainty has (largely) been navigated.

So long as that backdrop doesn’t shift – and it shows no signs of doing so any time soon – those ‘dislocations’ can likely endure for some time to come. With that in mind, I see little incentive to fade any of these moves, and in fact retain my preference to ride along with them, remaining an equity bull, gold bull, dollar bear, and expectant of steeper DM curves.

LOOK AHEAD – A bit of a barren docket today, as we await what promises to be a much busier day tomorrow, with US CPI and an ECB decision on deck.

As for today, though, last month’s US PPI report is due, with factory gate prices set to have risen 3.3% YoY last month, unchanged from the pace seen in July. Do note, though, that the PPI calculation explicitly excludes tariffs and duties, so it’s not the leading indicator for CPI that it usually is.

Other than that, there’s not much of interest. The speaker slate is barren, with most G10 central banks now into their pre-meeting ‘blackout’ periods, while there’s a 10-year Treasury auction tonight, though the sale should proceed relatively smoothly.