US: Tracking Government-Related Headcount Reductions [2/2]
- The nature of the “deferred resignation program” discussed in part one, with some 77k federal employees accepting the offer, shouldn’t see any direct impact on payrolls growth (in the establishment survey) until the October report as workers will remain on the payroll in the interim.
- The same is true for weekly jobless claims data, but in both cases expect them to be watched for signs that federal-reliant contractors are reducing headcount.
- To this end, watch today’s weekly jobless claims data, even if it’s possibly too soon for any of these indirect impacts to show initial claims up to Feb 15 for just over a week since the offer expired and continuing claims up to Feb 8. Continuing claims can still be of note though if they start to imply a cooling in rehiring expectations.
- We specifically focus on claims in Maryland, Virginia and Washington DC, which have drifted fractionally higher recently but are nothing untoward.
- One area where the direct impact from the federal buy-out scheme could show however is the household survey within the February payrolls report. Assuming those who accepted the offer are treated as equivalent to a furloughed worker, they’ll register as unemployed. A word of caution though, it’s a much more volatile survey, with a 90% confidence level of +-600k for employment vs +-136k for payrolls.
- Rounding out the major labor releases, we’re unsure when the buy-out scheme will show up in quit rates within the JOLTS report. As shown in part one though, the federal sector quits rate was just 0.4% in December – its lowest since mid-2017 – compared to private sector quits of 2.2%.
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GILTS: DMO Consultations Also Factoring Into Bid/Flattening
To add to the recent bullet, a reminder that the minutes of yesterday’s DMO consultations with gilt market participants (released this morning) revealed that there was “GEMM support for "a reduction in the duration of conventional gilt issuance in 2025-26 relative to the current year [...] some attendees cited declining structural demand for gilts from the UK pension sector as a factor in their recommendation to reduce long issuance."
- This, coupled with the removal of hedging pressure surrounding the pricing of the syndicated tap of the Jan-40 line, is likely promoting the recent bid/cure flattening.
BONDS: Dragged Away From Lows By Gilts
The bid in gilts (covered in the previous bullet) seems to help wider core global FI markets off session lows.
- German yields now little changed to 1.5bp lower on the day, while U.S. Tsy yields are 2.5-5.5bp lower.
- Flattening biases also apparent on both curves.
- A reminder that Tsys are playing catch up after the observance of MLK day in the U.S. and resultant closure of cash markets on Monday.
GILTS: Firmer After Syndication Hedging Pressure Abates
Gilts outperform over the last 40 minutes or so, with pricing of this morning’s syndicated tap of the Jan-40 line now in the rear-view and any hedging related pressure passing.
- The offering attracted record demand.
- Futures to fresh session highs above 91.80 at typing, bulls eye resistance at the Jan 17 high (91.96).
- Yields now 2.0-2.5bp lower across the curve, with the long end now outperforming after some modest curve steepening ahead of the supply
