Key Highlights

  • The Bureau of Labor Statistics reported +29,000 September payrolls and a 4.2% jobless rate, yet the 10-year yield still finished the week at 5.28%, which keeps iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) in focus.
  • Gold fell roughly 3.4% on the week to about USD 4,140 as yields stayed above 5%, a backdrop that frames SPDR Gold Shares (NYSEARCA:GLD) for the week ahead.
  • The dollar index closed at 101.93 after a third straight weekly gain, and Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP) holds long US Dollar Index futures weighted 57.6% to the euro.
  • Freddie Mac put the 30-year mortgage rate at 7.28%, up from 7.03% a week earlier, which is the rate backdrop for SPDR S&P Homebuilders ETF (NYSEARCA:XHB).

iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT): The Long End Refuses to Rally

The September employment report was weak on its face. The Bureau of Labor Statistics reported nonfarm payrolls of +29,000, an unemployment rate of 4.2%, and downward revisions of 31,000 to July and 29,000 to August, a combined 60,000 by our calculation. A softer labor market would normally pull long yields lower, yet the 10-year Treasury yield closed at 5.28% on October 2, according to the Treasury Department's daily curve. Reports indicate it briefly dipped toward 5.18% in early trade before rebounding, as sticky inflation and firmer oil limited the bid. That whipsaw matters for iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), which holds 47 Treasuries with maturities beyond 20 years, an effective duration of about 14.7 years and a 30-day SEC yield of 5.54%, according to the issuer's fund page. The fund charges 0.15% a year and reported about USD 47.2 billion in assets on October 2. Long duration cuts both ways, so every basis point move in long yields is magnified. Three events could set the next leg: FOMC minutes on Wednesday October 7 at 2pm ET, the USD 39 billion 10-year note auction one hour earlier, and a 30-year auction on Thursday October 8, all part of roughly USD 119 billion of scheduled refunding supply as reported. Our reading is that supply and inflation, not the payrolls miss alone, are steering the long end.

SPDR Gold Shares (NYSEARCA:GLD): Gold Slips as Real Yields Bite

Gold lost about 3.4% over the week to near USD 4,140 an ounce, reportedly pressured by Treasury yields above 5%. A bullion position pays no coupon, so a 10-year yield of 5.28% raises the opportunity cost of holding it. SPDR Gold Shares (NYSEARCA:GLD) is the largest listed vehicle for that exposure: the issuer reports about USD 142.2 billion in assets, 370.10 million shares outstanding and a net asset value of USD 384.13 per share as of October 2. The trust charges a 0.40% annual expense ratio, benchmarks to the LBMA Gold Price PM, and names HSBC Bank plc and JPMorgan Chase Bank as custodians, per the sponsor. The weak jobs print offered little relief because the market read it as a reason for patience from the Federal Reserve rather than for cuts. The central bank lifted its target range to 3.75% to 4.00% on September 16, and traders now see a December hike as the base case, according to Goldman Sachs Asset Management's Lindsay Rosner. A hawkish tone in Wednesday's minutes could extend the pressure, while a more cautious reading could ease it. This note does not forecast which.

Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP): A Third Weekly Dollar Gain

The US Dollar Index slipped through 102.00 after the payrolls release, touching a session low below 101.70, then settled at 101.93 for a gain of about 0.95% on the week, its third straight advance. Carry demand and elevated US yields have supported the currency, even as the labor data cooled. Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP) tracks the Deutsche Bank Long USD Currency Portfolio Index, which holds only long US Dollar Index futures, according to the sponsor. Those futures are weighted 57.6% to the euro, 13.6% to the yen, 11.9% to the pound, 9.1% to the Canadian dollar, 4.2% to the Swedish krona and 3.6% to the Swiss franc. Because the euro dominates the basket, euro-area data and European Central Bank signals matter as much as US prints. UK gilt yields near 5.96%, reportedly a decade high, show the global rate pressure is not unique to America. Roughly a 1 in 5 chance of an October hike, per market pricing, leaves the dollar sensitive to Wednesday's FOMC minutes. Fed speakers on October 6, 8 and 9 add further event risk.

SPDR S&P Homebuilders ETF (NYSEARCA:XHB): Homebuilders Meet a 7.3% Mortgage

Freddie Mac's survey showed the 30-year fixed mortgage rate at 7.28% on October 1, up from 7.03% the week before and 6.34% a year earlier. Daily lender quotes on October 2 were reportedly 7.3% to 7.5%. With the 10-year at 5.28%, analysts cited in market commentary see little scope for meaningful relief until it falls below 5%. SPDR S&P Homebuilders ETF (NYSEARCA:XHB) is a broader housing vehicle than its name suggests. The issuer reports 35 holdings, a 0.35% expense ratio and about USD 1.45 billion in assets as of October 2, with 42.80% in homebuilding and 38.21% in building products. Top positions include Cavco Industries at 3.48% and SharkNinja at 3.45%, so the fund tracks more than pure builders. Its one-year return was negative 9.19% at the end of August, in line with its index, the issuer shows. That is a historical figure and not a view on the week. Housing demand also depends on jobs, and a 4.2% unemployment rate with only +29,000 payrolls is a mixed signal for buyers. Sentiment data due Friday October 9 and September CPI on October 14, which consensus reportedly puts near 3.7% year on year, are the next checks.

Where Things Stand

The four funds are tied together by one question: whether weak hiring or stubborn inflation wins the argument over rates. On the evidence so far, inflation and supply are winning, because a payrolls gain of 29,000 did not bring the 10-year yield below 5.28%. iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) reflects that tension most directly through duration. SPDR Gold Shares (NYSEARCA:GLD) reflects the cost of holding a non-yielding asset. Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP) captures the currency carry. SPDR S&P Homebuilders ETF (NYSEARCA:XHB) offers the housing channel through a mortgage rate of about 7.3%. The next catalysts are the FOMC minutes on October 7, the Treasury auctions on October 7 and 8, and CPI on October 14. This is general information, not advice, and past fund returns do not predict future results.