The Economy and Bond Market Diary (3/29/2010)
Treasury bond yields rose this week with long term yields hitting the highest levels since last summer. Treasury supply continues to hit the market with $118 billion auctioned this week.
After showing some signs of stabilization, the housing market has rolled back over with new home sales hitting new record lows. While poor weather has been a factor recently, longer term issues remain such a high unemployment and competition from foreclosures.
Strengths
- Weekly initial jobless claims fell this week bringing the four week average down to the lowest levels since September 2008.
- Durable goods orders rose 0.5 percent and reinforced the idea of continued recovery in the manufacturing sector.
- The eurozone countries agreed to a backstop provision to support Greece, which eliminated some of the uncertainty surrounding the situation.
Weaknesses
- February new home sales hit new record lows. Existing home sales also declined.
- Portugal’s credit rating was cut, increasing concerns of Euro stability.
- U.K. retail sales rose 2.1 percent in February, which was the largest increase since May 2008.
Opportunities
- If financial markets are a good mechanism for discounting the future, the future appears relatively robust. The 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.
