June 3. Is the long upward squeeze in bond prices over?
–Interest rate futures prices continued to slip Monday as ISM was ultimately set at 55.4 following an initial errant release (or two). Bear steepener as reds fell only 3.625 while golds plunged 10.5. Ten yr yield rose back above 2.5%, adding over 7 bps to 253. Implied vol firmed with TYU 125^ settling 2’21 or 5.0%. With the ECB expected to take strong action to fight deflation and China taking steps to loosen financial conditions, there is hope that this year’s bond rally has finally run its course.
–With regard to inaccurate (fudged) data, I ran across this snippet from Warren Mosler blog: “During the first quarter (i.e., from January through March) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over a half percent higher at a 1.80% (annualized) rate, and the price index reported by the Billion Prices Project (BPP – which arguably reflected the real experiences of American households while recording sharply increasing consumer prices during the first quarter) was over two and a half percent higher at 3.91%.” Certainly a ten year yield of 2.5% doesn’t compensate for this alternative inflation measure. On the other hand, a consumer that’s squeezed by rising prices of necessities curtails discretionary spending that spurs growth at the margin. At peak prices of gasoline a few years ago, I spent $60 to fill my car. This weekend, $64. No wonder 1/3 of 18-34 yr olds live with their parents…
