The Economy and Bond Market Cheat Sheet (July 25, 2011)
Treasury bond yields rose across the yield curve as the worst-case-scenarios for Greece were averted and the flight to quality trades reversed.
Key euro-zone countries agreed to a new $144 billion bailout for Greece, calming the markets and lowering Greek bond yields, as seen below. One of the key tenets of the agreement was the participation of the private sector, which also shared in the pain of the restructuring.
Strengths
- The Greek bailout and restructuring has reassured the financial markets for the time being. Now investors are waiting for U.S. policy-makers to reach an agreement on the debt ceiling.
- Housing starts hit a six-month high, rising 14.6 percent in June. U.S. mortgage applications surged 15.5 percent last week.
- Japan exports rose 5.4 percent in June and the government announced an additional $165 billion to rebuild disaster areas.
Weaknesses
- Manufacturing data in China continued to contract, raising fears of a hard landing in China.
- A recent survey on back-to-school shopping showed a tentative consumer and confirms recent weakness in consumer confidence data.
- The German ZEW investor sentiment index fell to the lowest level since January 2009.
Opportunities
- Federal Reserve Chairman Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling from here.
Threats
- The U.S. debt ceiling issue needs to be resolved soon as unintended consequences could be large.
