The Weekly Report

  • Support on 10-yr UST held at 2.22% today as stocks dropped in the afternoon on profit taking in technology companies. Today’s session did add yet more curve flattening, something most portfolios tired of last week. UST selling dominated the morning as traders prepped for the heavy UST calendar on Monday. Major economic news on Wednesday might be more important than the Fed. Real money flows slowed to end the week as ‘news alert fatigue’ set in.
  • Despite low rates, a full diagnostic run of the bond market didn’t find many warning signs that rates will quickly rebound. We confirm our broad view of the ranges on 5s and 10s, outlining the key factors that will keep them in line. Beyond the drop in inflation expectations, core bond values have not actually changed that much this quarter. So obviously, inflation is a primary trigger to watch for higher rates. A series of charts highlight the ‘danger zone’ on four key rate components across the curve.
  • The first article also considers (again) whether stocks signal rates are too low. Unfortunately, the uncertain balance between the two sectors stays at a 50/50 split.
  • A quick look at the boost that stocks gave household net worth in the first quarter and what that could mean for the ‘wealth effect’ on GDP later this year. Recent trends suggest it will be a strong positive. The problem is the wealth effect regularly comes and goes with no warning. The first chart shows how the rapid growth in household wealth relative to GDP and the second shows the contribution stocks have made to recent accumulation.
  • Finally, the cover looks at next week’s agenda and the importance of the CPI and retail sales reports.
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