The Economy and Bond Market Radar (February 4, 2013)
Treasury bond yields rose again this week as economic news was positive and the FOMC meeting was uneventful. The two key pieces of economic data out this week was the ISM manufacturing data, which showed ISM jumping to 53.1 and at a nine-month high, and the unemployment report which showed the economy continued to create jobs at a modest but stable pace.
Strengths
⢠The January ISM manufacturing index hit the highest level in nine months and is viewed as key barometer for the direction of the economy.
⢠Nonfarm payrolls grew 157,000 in January and payrolls were revised higher for November and December. The unemployment rate ticked higher to 7.9 percent due to an increase in the overall labor force.
⢠Durable goods orders surged 4.6 percent in December driven by a strong auto and improving housing market.
Weaknesses
⢠Consumer confidence unexpectedly slumped in January and was the weakest since November 2011. The increase in payroll taxes that took effect at the beginning of the year was cited as a primary driver.
⢠Fourth quarter GDP declined 0.1 percent (annualized), which was well below estimates. The market shrugged off the data as the superstorm Sandy impact was a good part of the disappointment, which should reverse in the first half of the year.
⢠Eurozone lending fell for the eighth-straight month in December.
Opportunity
⢠The debt ceiling debate appears to be pushed into May, allowing the market to focus on economic fundamentals.
⢠While some Fed members expressed concerns over continued quantitative easing, the Fed still remains committed to an extremely accommodative policy until the economy improves.
⢠Globally central banks are increasing their simulative policies, with Japanâs recently elected prime minister vowing to take on deflation and deflating the Yen.
Threat
⢠The economy appears to gaining momentum and bonds have sold off, the risk for bondholders is that this trend continues.
