Employment Data

Today's report that the U.S. economy added 97,000 jobs in February led to a 7 basis point jump in yields of 10-year treasuries. This was the smallest employment gain in more than 2 years. The response by interest rates was partially due to the revisions to December and January employment data that increased employment by 55,000 jobs. Reuters predicts that "the weather effect suggests job gains will pick up when balmy weather returns," with February construction activity showing a big decline.

We're not so sure. Employment numbers will likely continue to come in under estimates, particularly as the year progresses. The latest round of tighter lending standards at many financial institutions, along with the implosion of the sub-prime lending community, is bound to have an effect on employment and economic growth later this year. As such, we think a short-term follow-through for rising interest rates is reasonable from the perspective of a bounce off oversold levels but longer-term, you will not have upward pressure on rates.

Strategy Update: The Dynamic Global Macro Strategy has had an impressive run over the last 9 months. The chart seen here shows performance since the end of the third quarter 2006: up nearly 16% versus the S&P 500 up 5% for an 11 point outperformance. The outperformance has come recently from a combination of bonds and commodity fund exposure in January and February followed by a swap to domestic and international equities after the recent market drop.