Bond Market Update

Data Recon

• The Advance Q2 GDP report showed real GDP increasing at an annual rate of 1.5% (Briefing.com consensus: 2.3%) on the heels of a 2.1% increase for Q1. The GDP Price Index increased by a whopping 6.3% (Briefing.com consensus: 3.7%) following a 3.6% increase in Q1.
  • While the headline GDP print is a bit disappointing, it is not as soft as it appears knowing that net exports subtracted 1.01 percentage points. The bright spot was the pickup seen in personal spending (+3.2% from +0.5%) and final sales to private domestic purchasers (+3.9% from +1.7%).
• Initial jobless claims for the week ending July 25 increased by 9,000 to 197,000 (Briefing.com consensus: 203,000). Continuing jobless claims for the week ending July 18 decreased by 7,000 to 1.782 million.
  • The key takeaway from the report is initial claims remaining below 200,000, which is an historically low level and indicative of a solid labor market where layoff activity is quite low.
• Personal income increased 0.2% month-over-month in June (Briefing.com consensus: 0.3%), personal spending jumped 0.3% (Briefing.com consensus: 0.4%), the PCE Price Index was down 0.1% (Briefing.com consensus: -0.1%), and the core-PCE Price Index rose 0.1% (Briefing.com consensus: 0.2%). On a year-over-year basis, the PCE Price Index was up 3.7% versus 4.1% in May, and the core-PCE Price Index was up 3.3% versus 3.4% in June.
  • The key takeaway from the report, taking into account Fed Chair Warsh's demonstrative statement that the Fed doesn't have a soft inflation target but a hard target of 2.0%, is that the PCE Price Index remains well above 2.0%.
• Yield Check:
  • 2-yr: +1 bp to 4.25%
  • 3-yr: +2 bps to 4.30%
  • 5-yr: +4 bps to 4.39%
  • 10-yr: +5 bps to 4.67%
  • 30-yr: +7 bps to 5.21%