Notes for Fri, Jun 05, 2026

172K NFP smashed the 88K bid with +93K back revisions, but composition is leisure pull-forward and a local-gov anomaly, we fade the move.

What we got

The May print came in at 172K against 88K consensus, a 4-sigma beat^[1], with March revised up by 29,000 and April by 64,000^[2], 93K in back revisions. The front end repriced hawkish on the headline and the curve bear-flattened in minutes. We're not buying the broad-reacceleration call.

Composition tells a different story than the print. Leisure and hospitality added 70K against a 14K twelve-month average^[3] (Memorial Day timing pull-forward), local government added 55K (biggest swing since March 2024)^[4], and full-time jobs fell by 79K while part-time rose by 266K^[5]. Wages held at 0.3% m/m and 3.4% y/y^[6]. Unemployment stuck at 4.3%^[7]. UBS and Vanguard both flagged the print as timing distortions and public-sector swings rather than a real reacceleration in labor demand^[8], we side with that read.

Rates & curve

Our DGS inventory cuts at the 6/03 close, today's tape isn't filed yet, so anchor against 2Y 4.08^[9], 10Y 4.49^[10], 30Y 4.99^[11], 2s10s 41bp^[12]. The compression in 2s10s into the print made today's hawkish flatten cheap to extend.

The 10Y term premium at 75bp on 5/29^[13] was already off its 5/19 high of 86bp^[14], duration-uncertainty premium had been bleeding lower even as policy-path uncertainty rebuilt. That asymmetry matters: if our composition-fade is right, the term-premium tailwind is doing more of the work into the next CPI than a rates rally is.

Funding & specials

SOFR closed at 3.62^[15] against an IORB of 3.65^[16], a 3bp wedge that hasn't widened despite reserves drifting. WRESBAL printed $3.014T on 6/03^[17] against $3.130T on 5/20^[18], a $116B drawdown over two weeks. RRP at $1.1B^[19] is operationally at the floor; no signal there.

The standout is the 10Y on-the-run: SOMA lent 91282CQQ7 at 19.7bp today^[20] against 61.9bp Tuesday^[21] and 59.6bp Wednesday^[22]. The squeeze is releasing into the bear-flattening, shorts getting paid to cover, not fast-money pressing the front-end short side. That's a tell: today's selloff is positioning unwind dressed up as a regime change.

Into next week

Amarnath's shift to a 2H hike call with first move in October^[23] is the sharpest move on the buy-side wire this week. We fade it on this composition, and we'd be sellers of paid-SOFR in reds with a tight stop above today's high if the print survives a clean revision next month. Alternate read we're rejecting: the +93K back revisions are the real signal, labor is genuinely re-firing, and the front end has further to go, possible, but the leisure/local-gov fingerprint argues against it. View breaks if June CPI prints firm and the household survey reaccelerates in the same direction. Assumes Treasury bill pace holds and no inter-meeting Fed lurch on May data alone.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]172K against 88K consensus, a 4-sigma beat (in May the US added 172K jobs... not only a 4-sigma beat to the median estimate of 88K, but also above the highest estimate of 125K) — Commentary · zerohedge.com
2. [2]March revised up by 29,000 and April by 64,000 (the change in total nonfarm payroll employment for March was revised up by 29,000... and the change for April was revised up by 64,000) — Commentary · zerohedge.com
3. [3]Leisure and hospitality added 70K against a 14K twelve-month average (Leisure and hospitality added 70,000 jobs in May, well above the average monthly gain of 14,000 over the prior 12 months) — Commentary · zerohedge.com
4. [4]local government added 55K (biggest swing since March 2024) (Local government +55K (biggest surge since March 2024)) — Commentary · zerohedge.com
5. [5]full-time jobs fell by 79K while part-time rose by 266K (part-time jobs +266K while full-time jobs drop by 79K, second month of decline in a row) — Commentary · zerohedge.com
6. [6]Wages held at 0.3% m/m and 3.4% y/y (Average hourly earnings... rose by 12 cents or 0.3%... Over the year, average hourly earnings have increased by 3.4%) — Commentary · zerohedge.com
7. [7]Unemployment stuck at 4.3% (The unemployment rate held at 4.3%, in line with expectations) — Commentary · zerohedge.com
8. [8]UBS and Vanguard both flagged the print as timing distortions and public-sector swings rather than a real reacceleration in labor demand (the beat looks largely explained by timing distortions (holiday effects), public-sector swings, and steady services hiring, rather than a genuine reacceleration) — Commentary · zerohedge.com
9. [9]2Y 4.08 (4.08) — FRED DGS2 · Jun 3, 2026
10. [10]10Y 4.49 (4.49) — FRED DGS10 · Jun 3, 2026
11. [11]30Y 4.99 (4.99) — FRED DGS30 · Jun 3, 2026
12. [12]2s10s 41bp (0.41) — FRED T10Y2Y · Jun 3, 2026
13. [13]10Y term premium at 75bp on 5/29 (0.7541) — FRED THREEFYTP10 · May 29, 2026
14. [14]5/19 high of 86bp (0.8621) — FRED THREEFYTP10 · May 19, 2026
15. [15]SOFR closed at 3.62 (3.62) — NY Fed SOFR · Jun 4, 2026
16. [16]IORB of 3.65 (3.65) — FRED IORB · Jun 5, 2026
17. [17]WRESBAL printed $3.014T on 6/03 (3013902) — FRED WRESBAL · Jun 3, 2026
18. [18]$3.130T on 5/20 (3129562) — FRED WRESBAL · May 20, 2026
19. [19]RRP at $1.1B (1.122) — FRED RRPONTSYD · Jun 4, 2026
20. [20]SOMA lent 91282CQQ7 at 19.7bp today (19.7 bp, $4.47B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-05
21. [21]61.9bp Tuesday (61.9 bp, $6.24B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-03
22. [22]59.6bp Wednesday (59.6 bp, $6.80B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-04
23. [23]Amarnath's shift to a 2H hike call with first move in October (Amarnath's shift to 2H hike call + Oct-26 first move is a meaningful repricing vs. consensus flat-hold into 2027) — Commentary · employamerica.org

Generated by Short Rates Desk. Informational only. Not investment advice.