The Economy and Bond Market Diary (June 14, 2010)
Treasury bond yields were little changed on the week with most issues seeing slight yield increases. It was a relatively light week for economic data and the market appeared to react more to stock market movements and general macroeconomic uncertainty.
The small amount of economic data that was released showed a mixed picture. Retail sales for May were very weak, falling 1.2 percent. Initial jobless claims continue to hover around the 460,000 level and are not indicating a recovery in employment. On the other hand, the University of Michigan Consumer Confidence Index rose to the highest levels since January 2008 as consumers reported feeling more confident in both the current situation and the future.
Strengths
- The University of Michigan Consumer Confidence Index rose to the highest levels since January 2008, contradicting a retail sales report which appeared to indicate quite a bite of consumer skepticism.
- The 30-year fixed rate mortgage rate fell to 4.72 percent, near a record low.
- Brazil’s GDP jumped 9 percent in the first quarter, which was the best showing in 14 years.
Weaknesses
- May retail sales were a real disappointment. While one month doesn’t make a trend, the magnitude of the decline is worrisome.
- Mortgage demand is very weak since the ending of the home buyer tax credit in April and repossessions hit a new record in May.
- Brazil’s central bank took measures to reign in the country’s robust growth by raising interest rates by 75 basis points to 10.25 percent.
Opportunities
- Inflation data schedule for release next week may reinforce the view that the Fed has plenty of room to maneuver.
Threats
- The market will continue to sputter on the whims of macroeconomic risk factors until the European situation is resolved with some degree of certainty.
