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Lackluster employment report increases stimulus bets

'The yield curve steepened substantially this week, with the 10-year note adding eight bps of yield, returning to the previous peaks hit in November and June.  The rationale for the yield increases were two-fold. 

First, the progress of coronavirus vaccine development lifted stocks (and pushed bond prices down) as investors looked forward to the economy's reopening.  Second, Friday's very poor monthly payrolls report increased the likelihood that the incoming Biden administration will favor a large fiscal stimulus package to assist in the economy's recovery. 

The report indicated that only 260k jobs were added in November (versus expectations of 460k and October's 610k gain).  In addition, labor force participation declined further as more Americans opted out of participating in the labor market amid the Covid pandemic.  In addition to the damage done to those Americans' long-term employment prospects, a smaller labor force makes an economic recovery that much more difficult.

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