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Bond Markets Slightly Stronger After Weak Consumer Spending Data
Posted to: Micro News
Thursday, June 26, 2014 8:55 AM

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We can skip right to the domestic session and right to the economic data this morning as bond markets were completely unchanged by 8:30am (though it may be worth noting that Treasury yields look like they might have gone higher had it not been for strength in German debt which is currently at 2014's low yields). 

2 reports this morning: Jobless Claims and Incomes/Outlays (which is basically "consumer spending"). Claims isn't very interesting.  It came in close to consensus and had no major revisions (312k vs 310k forecast and continued claims 2.571 vs 2.570 mln forecast).

The biggest obvious positive factor for bonds is the miss in consumer spending (personal consumption expenditures, officially).  Here's the run-down:

  • May Spending +0.2 vs +0.4 forecast.  April revised to 0.0 from -0.1
  • Income +0.4 vs +0.4 forecast
  • Core PCE price index +0.2 vs +0.2 forecast
  • Inflation-adjusted spending -0.1 vs -0.2 previously

In addition to the economic data, Richmond Fed Pres Lacker was out with a prepared speech at 8:30 with an uncharacteristically dovish (read: bond-friendly) remark on labor markets potentially having recovered less than employment rate indicates.  While this is a "no duh" statement for the average working-class citizen, it's not the kind of thing that Lacker and other hawkish Fed presidents are known for saying. 

This probably isn't a major consideration for markets this morning, but it's an interesting evolution in his tone nonetheless. The more we see relatively hawkish Fed presidents saying stuff like this, the more we can take the relatively dovish Fed members at their word regarding the commitment to accommodative policy.

10yr yields fell most of the way to yesterday's lows, but are evaluating a bounce at the moment.  MBS basically hit yesterday's highs (there were a few moments of higher prices right after GDP yesterday, but only by 1 tick).  Fannie 3.5s are currently up 4 ticks on the day at 102-22.

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