Economy and Bond Market Diary (5/1/2010)

The Economy and Bond Market Diary (5/1/2010)

Treasury bond yields fell across the board this week as investors sought relative safety in the face an escalating crisis in Greece.

April consumer confidence hit the highest levels since September 2008 and consumers’ six-month outlook hit the highest levels since October 2007. First quarter GDP rose 3.2 percent, rising for the third quarter in a row and giving Americans a reason to be optimistic.

Strengths

• First quarter GDP rose 3.2 percent, in line with expectations. This is further proof that the economy is continuing to improve and underlying trends appear strong.
• Consumer confidence rebounded from a February dip and hit the highest level since 2008.
• Russia’s central bank cut interest rates again this week as inflation concerns have subsided for the time being. Globally, short-term interest rates continue to inch lower, providing a future support for the global economy.

Weaknesses

• Greece continued to dominate the news this week and officials will work over the weekend to try to come to a resolution on an aid package.
• The crisis in Europe continues to spread. Greece’s debt was cut to “junk” and Spain’s credit rating was also lowered this week.
• Brazil’s central bank raised interest rates by 75 basis points this week in an effort to slow the economy before inflation becomes a problem.

Opportunities

• If financial markets are a good mechanism for discounting the future, the future appears relatively robust. Markets have been able to shake off bad news relatively easily recently, probably a good sign for the economic recovery.

Threats

• When governments around the world begin to wind down the monetary and fiscal stimulus programs put in place during the economic crisis, it will likely present a headwind for the economy.