The nonfarm payrolls report, which has quickly become the most important economic data point of the month, was released on Friday and showed an increase of 195k jobs during June, 30k higher than estimates. The report’s recent increase in significance is due to the Federal Reserve’s focus on employment when considering any change to its quantitative easing policies. The current strength in employment numbers has caused the bond market to sell off, as investors position themselves for a market where the Fed is buying less, or no, Treasury and/or mortgage securities. As such, 10-year Treasury yields are currently 2.66%, significantly higher than just 6 weeks ago. In our minds, it is important to focus on fundamental economic data, particularly inflation, when determining fair value for interest rates. On that front, it appears that rates are now closer to trading in line with fundamentals, as inflation (measured by the PCE deflator) is running at just over 1% year-over-year. Wage gains, which can serve as early inflation indicators, remain in check. The majority of the gains in employment during June (57%) came from the hospitality and retail industries, typically lower paying jobs. We also saw a sharp increase in part-time workers, as companies appear to be trying to avoid the Affordable Care Act requirement for providing health insurance coverage to full-time employees. Other data such as manufacturing (ISM manufacturing was reported last week at 50.9, barely in expansionary territory) and GDP (likely to come in under 2% growth this year) indicate a sluggish economy. In all, we are looking through the near-term volatility, and with our client portfolios holding a high proportion of bonds maturing within 5 years, we are waiting for the right opportunity to purchase longer bonds, which have become much cheaper.