"Fool Me Once, Shame on You. Fool Me Twice, Shame On Me"

The US labor market is still on the operating table, with weak numbers disappointing many, despite the strength suggested by Wednesday's ADP jobs report. Bonds did not like Wednesday's report and it seemed like the 10 year note was poised to blow through 3.5% on confirmation from yesterday's non-farm payroll data. Instead we got another lackluster reminder that structural unemployment is here to stay for a while longer. In fact the unemployment rate dropped but sadly, most of that was from discouraged workers no longer seeking employment and not from more people finding jobs. The whole US Treasury curve rallied about 10 bps, helped by Federal Reserve Chairman Bernanke's comments that while US economic growth in 2011 would improve, it would not be significant enough to stall the previously announced bond buy backs that are part of quantitative easing measures being implemented to accelerate the growth rate to a healthier pace. Economic data these past few months has been robust enough to push the 10 year Treasury north of 3% but a continued anemic labor market should keep it capped inside of 3.5%. That range for interest rates suits a lot of people, including policy makers concerned about higher rates having a dampening effect on the housing market as well as bond investors in spread product such as mortgage backed securities, corporate bonds and emerging market debt. The dazzling returns of bonds from 2009 and 2010 are not likely to be repeated anytime soon, but clipping a nice coupon might end up being preferable to equities that have priced in a lot of good news already.