TLT's Price Rises as Investors Await Jobs Report

What a difference one week can make.

After digesting a slew of economic reports, investors are growing confident that inflation and interest rates can decline in the coming months, as rate-sensitive bond funds like the iShares 20+ Year Treasury Bond ETF (TLT) rose nearly 5% in five trading days.

The renewed confidence that inflation is cooling began with last Thursday’s report from the Bureau of Economic Analysis (BEA) that revised Q1 real gross domestic product (GDP) growth to 1.3%, down from the first estimate of 1.6%.

Then came Friday’s Personal Consumption Expenditures (PCE) report, the Fed’s preferred measure of inflation, which revealed that inflation increased 0.2% in April, its first reading below 0.3% this year.

Investors also liked Monday’s news that economic activity in the manufacturing sector contracted in May for the second consecutive month, according to the Institute of Supply Management (ISM).

Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report revealed that job openings declined, signaling potential weakening in the labor market.

TLT Price Rally, Friday’s Jobs Report

The next test of investors’ inflation expectations and the rally in bond prices is Friday’s Employment Situation Summary, also known as the nonfarm payrolls report due before markets open. Economists expect continued job growth, with the economy adding a net 178,000 jobs in May after adding 175,000 the prior month, according to Morningstar.

That number is lower than the first quarter’s monthly average of 269,000, and economists and investors may view this as a more sustainable level of job creation that wouldn’t necessarily translate to higher inflation.

Perhaps the bigger number to watch in the report will be unemployment, which if it remains at the expected 3.9%, will mean the jobless rate has been below 4% for 27 straight months.

For the TLT price rally to continue, investors will be watching for lower-than-expected jobs growth or a surprise uptick in unemployment to 4%.