**March Jobs Report Keeps Fed on Track for Larger Rate Rise in May**
**Strong hiring could sustain fears of an overheating economy**
**By Nick Timiraos, The Wall Street Journal, Updated April 1, 2022**
**Friday’s employment figures underscore the urgency Federal Reserve officials feel to quickly withdraw economic stimulus by raising interest rates in potentially larger intervals in the coming months.**
**Employers added 431,000 jobs in March, the Labor Department reported on Friday, and the unemployment rate fell to 3.6% from 3.8% in February. Hiring during the first two months of the year was stronger than initially reported, leaving average monthly hiring at 562,000 jobs so far this year, in line with last year’s booming pace of job gains....**
**In the two weeks since they last met, many Fed officials have indicated they could support raising rates by a half percentage point instead of the traditional quarter point at their coming meeting, May 3 to May 4. Mr. Powell has indicated that the Fed is also likely to finalize plans at that meeting to start shrinking the central bank’s $9 trillion asset portfolio....** [end quote]
This is a combination of rising interest rates at short durations and monetary tightening at longer durations (Quantitative Tightening). The Treasury yield curve is already flat at higher durations. The 10Year-2Year spread just went negative, often a signal of approaching recession.
Owners of bonds and (especially) bond funds need to be aware of the way duration affects the value of bonds.
**Fixed-income securities and interest rates are inversely correlated. Therefore, as interest rates rise, prices of fixed-income securities tend to fall. When applied to calculate fixed income securities, interest rate sensitivity is known as the asset's duration. This is one way to determine how interest rates affect a fixed-income security portfolio. The higher a bond or bond fund's duration, the more sensitive the bond or bond fund to changes in interest rates.** [end quote]
Many METARs feel that bonds are beneath their notice and that stocks are a superior investment. But the bond market is larger than the stock market and usually far less volatile.
I have laddered bonds and CDs for many years. When they mature, the cash is available for re-investment. For the past couple of years, with yields so low, I chose to hold cash rather than reinvest. The WSJ says that banks are not likely to increase their (very minimal) interest rates anytime soon, so I have been shopping among high-rated corporate and Treasury debt. Short-term duration (less than 2 years) since I expect rates to rise in that time frame.
I also own stocks. But the stock market is in a bubble and vulnerable to much larger drawdowns than the bond market.