GILTS: 10s Trade Below 4.40%

DUH6 106.80/107.00/107.20c fly, bought for 3 in 10k.

The delayed Employment Cost Index report for Q3 saw its softest nominal wage pressures since 2021 even if the wages & salaries component has recently seen equally soft quarters. At these rates, the labor market is unlikely to be putting material pressure in either direction on inflation. 

• The ECI increased 0.79% non-annualized in Q3 (sa, cons 0.9) after an unrevised 0.94% in Q2 and 0.89% in Q1. It’s the softest quarter since 2Q21.
• The wages & salaries component also moderated to 0.79% after 1.01% in Q2 although that’s back close to the 0.77% in Q1.
• The private sector metrics broadly reflect these trends, at 0.80% for total compensation and 0.80% for wages & salaries.
• It leaves total employment compensation costs running at 3.2% annualized in Q3 after 3.8% in Q2, as are private sector wages & salaries at 3.2% annualized after accelerating to 4.2% in Q2.  
• The combination goes against the Q3 acceleration in average hourly earnings growth to 4.0% after 3.3% in Q2, or 3.8% for the non-supervisory category after 3.4% in Q2.
• We’re yet to see Q3 productivity data – the preliminary report is now set for Jan 8 vs Nov 6 originally scheduled) but having been running at 1.5% Y/Y in Q2, it should continue to see employment costs broadly consistent with the inflation target rather than implying material risks in either direction. 

• -2,000 WNH6 118-07, sell through 118-08 post time bid at 0845:05ET, DV01 370,000.
• The 30Y Ultra contract trades 118-07 last (-4)