Markets & Economy

Rise in interest rates hard to square with data

Commentary: If credit markets are going to read news this way, rates could keep going up

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Early this week a spate of poor data started a bond and mortgage rally, but stopped cold today on a very ordinary employment report for May. Ten-year Treasury notes have traded back up to the 2.15 percent high of 2013, mortgages solidly above 4 percent. If the credit markets are going to read news this way, rates are still vulnerable on the upside. On Monday, the Institute for Supply Management reported that the May manufacturing index tanked to 49 versus the tepid 51 expected, and a drop below 50 has been good for bonds every time since these surveys began in the early 1970s. The ISM has weakened steadily since January 2011. Today's employment data: 175,000 net-new jobs in May, but hourly earnings and hours at work were flat. The rise in rates is hard to square with the data. The Fed will pull back from bond buying at some point, but not now, and not soon in a meaningful way. It may reduce its purchases, but they are rising relative to bonds in the market: Treasury borrowing has...