Interest Rates and Employment Reports

Take a look at the yield on the 10 year bond over the past 3 months (40 indicates an interest rate of 4.0%, etc.):

Something seems a bit odd to me about this picture: namely, those massive swings in bond prices (and thus yields) that have happened with each of the last 2 employment reports in early March and early April. Bond yields plummeted on March 5, when the employment report was somewhat weaker than expected. And bond yields shot up on April 2, when the employment report was stronger than expected.

Are such extreme reactions to a monthly report sensible? Some movement in bond yields in response to the employment report is only natural – surprises in the data, by definition, should be expected to change expectations about the future. But the magnitude of these movements in the interest rate seem incredibly large to me. Month-by-month statistics are notoriously volatile, easily affected by relatively small one-time events (such as the ending of the grocery workers strike in California), and thus generally only tell us a lot about the economy when a trend is sustained over multiple months. But looking at this interest rate data, it looks like with each new unemployment report, the market takes the result as an iron-clad forecast valid for many more months to come. Until the next report, that is.

I’m not trying to second-guess the market. But I do wonder if this is an example where traders may sometimes get carried away by a hyped-up emotional response to one month’s data, rather than take it for what it really is – data about just one month.