Bond Traders Look for an Edge in Overlooked Economic Data

Traders work on the floor of the New York Stock Exchange earlier this week. (Spencer Platt/Getty Images)

Key Points

• A U.S. government shutdown has led to a void in official economic data, prompting bond traders to rely on alternative reports.
• Revelio Labs estimated 60,000 jobs added in September, while ADP reported a loss of 32,000 jobs, creating conflicting labor market signals.
• Higher prices paid by businesses, as indicated by the ISM services index, suggest persistent inflation concerns alongside slowing growth.

With no official economic data releases amid a U.S. government shutdown, bond traders are treating lesser-known reports as signposts at a critical phase in the economy.

For the first time in 12 years, the Bureau of Labor Statistics on Friday didn’t release the monthly jobs report due to a shutdown. A tally on unemployment claims also wasn’t released on Thursday. This data void comes after the Federal Reserve cut interest rates last month on signs of labor market weakness. But the Fed’s next move in October is difficult to predict—it must balance concerns about inflation and a weak job market.

All this has forced bond traders to broaden their data tool kit to price the Treasury market and avoid getting caught up on the wrong side of the trade.

On Thursday, the day after the shutdown, traders sold-off two-year notes in the morning session. “One cause of that was an unusual release markets don’t normally pay much attention to,” wrote Jim Reid, global head of economics and thematic research at Deutsche Bank. It “was a payrolls estimate from Revelio Labs.”

New York-based Revelio Labs, a workforce intelligence company that uses data from networking platforms like LinkedIn, said the U.S. added about 60,000 jobs in September, a much cheerier read on the labor market than that by payroll processor ADP, which said the private sector shed about 32,000 jobs in September.

Revelio, which started putting together such stats just last month, suggests viewing its reports alongside ADP. It estimated that the BLS would have reported approximately 38,000 jobs gained in September.

Combined with data from outplacement firm Challenger, Gray & Christmas that showed layoff announcements were low in September it “boosted optimism on the near-term US outlook,” Reid writes. Investors pared back their expectations for rate cuts and yields spiked Thursday morning. Yields move in the opposite direction of prices.

This afternoon yields on two-year and 10-year Treasuries are again higher as the market gives outsize significance to second-tier data yet again. While the Institute for Supply Management’s services index showed a stalling in services growth, the report also brought to light the higher prices businesses are paying now versus the prior two months.

Yields are up slightly in response to a “stagflation lite type print with prices paid remaining high,” wrote Peter Boockvar, chief investment officer of One Point BFG Wealth Partners. Signs of higher inflation makes investors demand more yield.

Goldman Sachs also published a jobless claims report this morning using state data that shows claims at around 224,000 for week ended Sept. 27, higher than the 218,000 reported by the government in the prior period.

On net, it reinforces the Fed’s dilemma at the moment, the risks to both sides of the dual mandate—inflation and employment—are elevated, Vail Hartman, analyst on the U.S. Rates Strategy team at BMO Capital Markets.

The private sector stats is rushing to fill the gap left by the government for bond traders—their accuracy in painting a clear economic picture remains to be seen.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.