Bond Markets Back into Positive Territory After Durable Goods Paradox
As with so many economic data releases, today's Durable Goods report has a "headline" and "internal components." The headline is simple enough; just "durable goods orders." The components are essentially the building blocks for the headline, or some combination of those building blocks meant to filter out some level of volatility in the data.
For instance, if we know that a large portion of the headline is accounted for by aircraft manufacturing, and defense spending, and if we know that these two components can vary greatly from month to month, we may well be interested to know how Durable Orders fared without contributions from those two components.
Indeed this is one of the most closely watched internal readings in the report--the "Nondefense Ex-Air." Simply put, it's Durable Goods minus aircraft manufacturing and defense spending. It's interesting today because it fell by 1.3 percent compared to a forecast gain of 0.7 percent. It was also revised down to +0.8 in January from +1.5 previously.
For the most even-keeled component of the report to miss by that much AND to be revised so much lower is a more meaningful consideration for markets than the headline Durable Goods reading of +2.2. As such, markets are able to overlook the stronger-than-expected headline and Treasuries/MBS are permitted a moderately-sized morning rally.
This morning, it takes Fannie 4.0s into positive territory, currently up 2 ticks on the day at 103-28 after opening 1 tick lower at 103-25.