Fear the Septaper

July 5, 2013

Credit to Barclays economists for coining the term ‘Septaper’

A solid U.S. employment report for June appears to have cemented market expectations that the Fed will begin to reduce the pace of its bond-buying stimulus in September.  Average employment growth for the last six months is now officially above 200,000 per month.

Never mind that, even at this rate, it would take another 11 months for the job market to reach its pre-recession levels – and that’s not counting the population growth since then.

John Brady, managing director at R.J. O’Brian & Associates in Chicago, nails the market’s sentiment:

This number keeps the Fed tapering at the September FOMC on track. The market is reacting with the idea that the Fed will begin tapering in September.

Cragi Dismuke, chief economic strategist at Vining Sparks in Memphis, Tennessee adds:

This keeps the tapering notion on. We really need a bad report to change what the Fed wants to do. This should put more pressure on bonds.

It did, sending 10-year Treasury note yields to fresh two-year highs around 2.70 percent, raising concern about whether the spike in borrowing costs might derail the economic recovery, particularly in the housing sector.

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