The Economy and Bond Market Cheat Sheet (January 10, 2011)
U.S. Treasuries were mixed this week with the long end of the yield curve selling off, intermediates rallying slightly and short-term issues roughly unchanged. Economic data continues to generally be better than expected, which has put pressure on the long-end of the yield curve. The employment report released Friday showed the economy is continuing to grind forward, just not at the pace many had hoped for. Nonfarm payrolls grew 103,000 in December.
Strengths
- Nonfarm payrolls rose 103,000 in December and the prior two months were revised higher by 70,000 jobs.
- The ISM Manufacturing Index rose to 57, indicating expansion for the seventeenth-straight month.
- The ISM Non-Manufacturing Index rose to 57.1, the highest reading since May 2006.
Weaknesses
- Global food prices have risen six months in a row, hitting the highest level since 2008.
- Portuguese 10-year bond yields hit a new high this week as Eurozone problems persist.
Opportunities
- The yield on 10-year Treasuries has bounced off October lows to levels comparable to May of last year. This may offer an attractive entry point for bonds.
Threats
- The economy appears to be performing better than many expected and could be a threat to fixed income markets as yields move higher in response.
