Keywords: jobless claims, initial claims, continuing claims, labor market, Fed rate hike, long-term Treasury yields

Key Highlights

  • Initial jobless claims fell by 1,000 to a seasonally adjusted 197,000 in the week ended September 19, below the 201,000 forecast and near historic lows, the Labor Department reported.
  • The four-week average fell 1,750 to 202,250, while continuing claims rose 2,000 to 1.719 million and the insured Unemployment rate held at 1.1 percent.
  • Citigroup's Andrew Hollenhorst noted the Fed has shifted focus from employment risks toward Inflation given labor market stability.
  • Long-duration Treasuries have borne the brunt of the repricing, keeping the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) central to the rates debate as the 30-year yield nears 5.5 percent.

Layoffs Remain Scarce

The weekly claims report, released September 24, remains the most timely read on layoffs, and it describes very little firing. On an unadjusted basis, claims totaled 163,811, up 10,243 or 6.7 percent from the prior week. Continuing claims, a gauge of how easily laid-off workers find new jobs, edged up to 1.719 million in the week ended September 12. Christopher Rupkey of FWDBONDS said the economy seems to be firing on all cylinders, helped by AI Capital spending. Other data agree: the S&P Global flash PMI showed firms adding staff at the fastest pace since June 2022, and August payrolls rose 162,000 after upward revisions of 55,000 to June and July. The modest rise in continuing claims is still worth watching for signs that rehiring of the unemployed is slowing.

Removing the Argument for Restraint

Low claims matter because they remove the main reason the Fed might hesitate. With inflation above target and unemployment stable, officials can tighten without the usual trade-off. The Fed raised rates to 3.75 percent to 4.00 percent on September 16 in a unanimous 12-0 vote, cutting its 2026 unemployment projection to 4.1 percent while 12 of 18 officials signaled another hike this year. New York Fed President John Williams called another hike before year end reasonable, and Governor Michael Barr said further policy adjustments are likely needed. Headline CPI ran at 3.4 percent in August and core PCE at 3.3 percent in July. CME FedWatch put October 28 hike odds at 72.5 percent as of September 28, and odds of at least one more hike by December 9 at 94.5 percent.

Why the Long End Is Most Exposed

Yields have risen across the curve, but the long end has moved most. The 2s10s spread widened to about 36 basis points on September 25, a bear steepener in which long yields rise faster than short ones. The 30-year yield hit about 5.48 percent on September 28, near its highest since 2004, and the 10-year reached about 5.21 percent. Weak 5-year and 7-year auctions added pressure, with the 7-year clearing at 5.085 percent, the highest since April 1993. For the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), which holds the longest maturities, rising yields mean price declines, and strong labor data reduce the odds of a growth scare that might otherwise support bonds. The spillover reaches borrowers too, with Freddie Mac's 30-year Mortgage rate at 7.03 percent.

Where Things Stand

Yes, by the Fed's current reading. Claims of 197,000 and a four-week average of 202,250 show employers holding on to workers, freeing the Fed to focus on 3.4 percent headline inflation, which is why CME FedWatch prices a 72.5 percent chance of an October 28 hike. For the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT), a firm labor market removes one potential source of relief for long bonds. Weekly claims on October 1 and September payrolls on October 2, forecast at about 100,000, come next. A sustained rise in claims would be the first sign the calculus is shifting.