The yield curve flattened during the holiday-shortened week as longer-dated yields declined by as much as 6 bps. The short end of the curve continues to be anchored in line with the near-zero Fed funds target with no expectation of movement there. The market's attention this week was focused on the continued volatility in US equities and a poor weekly jobless claims report. That release showed another 844,000 initial claims for unemployment benefits, matching the prior week's reading rather than improving as was expected.
The number of continuing claims also defied expectations of improvement, increasing from 13.3 to 13.4 million. The weekly claims data stands in contrast to the relatively robust readings in last week's payrolls report, which showed a decline in the unemployment rate to 8.4%. Going forward, the focus will continue to be on the health of the labor market, as a full economic recovery will not be possible without consumer spending leading the way.