Weak European PMI Readings Boost Treasury Prices

      • Treasury yields are lower this morning after EU composite PMI readings unexpectedly slipped below 50.0 earlier today. Anything below 50 signals contraction and the recession warning sent EU-based yields lower and Treasuries have followed suit on what should be a quiet Friday trading day here.


      • We will get our own preliminary PMI readings later this morning for July, but while some softening is expected none are forecast to dip below 50. The composite is expected to tick up to 52.4 vs. 52.3 while services is expected to remain at 52.7 and manufacturing dropping to 52.0 vs. 52.7.


      • Presently, the 10yr Treasury is yielding 2.80% after getting as low as 2.79% overnight on the weak European PMIs. That’s the lowest yield since July 6 and signals the market’s increasing belief that a global economic slowing will be the consequence of global central banks tightening actions.


      • With the Fed decision looming next week, and the consensus still decidedly in the 75bps rate hike camp, the market is not likely to see much volatility before heading into another summer weekend.


      • The Fed should be somewhat encouraged with the direction of commodity prices, especially oil, which has declined 19% from its mid-June highs. That all-important price of gas and its direction of movement has a direct bearing on consumer confidence. Other big movers of late have been copper (-25% since early June), and wheat (-38% since early May). If those moves hold, it could lead to some favorable month-over-month comparisons in the all-important food and gas CPI components.


      • While this week has been quiet on the economic news front that will pick up next week. While the FOMC meeting will steal all the headlines, the first look at second quarter GDP will be released next Thursday with the Bloomberg consensus calling for a thin 0.4% growth rate. Atlanta Fed’s GDPNow, however, has it much lower at -1.59%. That would constitute two straight negative quarters, meeting the technical recession definition.


      • The other first-tier report of note will be the June Personal Income and Spending numbers next Friday. Personal spending is expected to increase 0.9% vs. 0.2% in May. That’s another sign that the consumer is out and about enjoying the summer break, but what happens after that?  The important inflation reading in the report, core PCE, is expected to increase 0.5% vs. 0.3% in May with the year-over-year rate increasing to 4.8% vs. 4.7%. That will obviously keep the Fed’s hawkish stance intact as the focus turns to the September FOMC meeting.


Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 3.00 3.04 3.05 3.14 3.30 3.76
0.50 2.98 2.98 2.98 3.03 3.16 3.65
1.00 2.98 2.94 2.95 2.99 3.07 3.52
2.00 2.93 2.90 2.91 2.95 NA
3.00 2.86 2.89 NA
4.00 2.84 NA
5.00 2.81 NA
10.00 NA

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Published: 07/22/22 Author: Thomas R. Fitzgerald