May 1. Bonds rally as Fed continues tapering
–Wall Street Journal: Fed Cuts Bond Buys, Sees Growth Pickup. Well sure, not too hard to predict a growth pickup from Q1’s dismal 0.1 print released yesterday morning.
–Tens and bonds closed at the high of the day after an initial dip following the FOMC statement. Ten year yield fell around 4.5 bps to 264.5, TYM closed 124-13.5. There are a few highs in the last 2 months in TYM just above 125 (since early March). Last employment report saw a low of 122-22.5, the low since then has been 123-16. The path which will create the most pain appears to be toward lower yields, which is especially perplexing given new highs in DJIA. Since early Feb the low yield prints have been between 258 and 262…getting close. Range for the past three months has only been 258 to 280.5.
–Corporate borrowing has been strong, though it hasn’t translated into capital investment. Mortgage refis are plunging. Credit spreads are tight. Low rates and QE programs haven’t provided the spark to the economy and Asia now seems to be a restraining influence rather than growth catalyst.
–Internals of the GDP report were terrible. (ZH) Growth would have been negative if not for spending associated with Obamacare. (GS)- Wages and salaries also grew 0.3% in Q1 (vs. +0.5% in Q4) and an even slower 0.2% in the private sector. On an unrounded basis, wage and salary growth was the slowest in the 32-year history of the series.
–Today brings Job Claims expected 320k, Personal Income and Spending +0.4 and +0.6. ISM 54.2.
