Yesterday’s economic news had a clear impact on both the equities and fixed income markets as the weaker than expected advance retail sales report shifted market participants’ investing away from equities and into corporates and Treasuries. Treasury secretary Tim Geithner’s comments regarding the recovery of the financial system (“the financial system is starting to heal”) failed to dissuade investors’ concerns that a 0.40% drop in US retails sales in April (analysts had expected retail sales to remain flat) raising concerns about the economic recovery. Yesterday’s “repricing of risk” was clear as equities and preferred stock suffered with these renewed economic concerns yet corporates and treasuries gained momentum. Therefore, while the Dow dropped 184 points to close at 8,284 and the average preferred stock decreased -3.76%, financial corporate spreads tightened across the yield curve (from 12 basis points in 2010 to 16 basis points in 2039). With regards to Treasuries, the 2 year note gained 1/32s to yield 0.86% while the 5 year note moved up 5/32s in price yielding 1.98%. The benchmark 10-year note rose 14/32s to yield 3.12% while the long bond closed 1 point and 1/32s higher (7 bps lower) to yield 4.09%.
Treasury prices are flat this morning after stocks surprised with a stronger than expected opening. In the economic releases for the day, the latest report on the Producer Price Index revealed a slightly higher than expected reading. Traditionally, intermediate and long Treasuries are susceptible to inflationary expectations, (higher than expected inflation pushes Treasury prices down) but this morning inflationary concerns have stayed in the back of investor’s mind. The 5-year note has gained 1/32s to yield 1.97% while the benchmark 10-year Treasury is currently up 1/32s to yield 3.11%; by contrasts the 30-year has dropped 6/32s so far to yield 4.11%. The Producer Price Index (PPI), which measures the change in prices received by domestic producers in all stages of processing (crude, intermediate materials and finished goods), rose more than expected last month to 0.30%, vs. the expected 0.20%. An important factor for this number was a 2.60% change in gasoline prices and a 1.50% in food prices (versus the previous month’s drop of 13.10% and 0.70% respectively). Nevertheless Core PPI, which excludes the volatile food and energy sectors rose 0.10% for the month; in line with analysts’ expectations. Both PPI and core PPI year-over-year readings were in line with expectations at -3.70% and 3.40% respectively.
Dissipating last week’s better than expected report, the Department of Labor announced that Initial Jobless Claims rose by 32,000 to 637,000 for the previous week. Analysts were expecting claims to only reach 610,000 for the period. The less volatile 4-week average number of initial claims also rose 6,000 from the previous week to 630,500. Continuing Claims increased 209,000 to yet another record at 6.560 million.
Treasury prices are flat this morning after stocks surprised with a stronger than expected opening. In the economic releases for the day, the latest report on the Producer Price Index revealed a slightly higher than expected reading. Traditionally, intermediate and long Treasuries are susceptible to inflationary expectations, (higher than expected inflation pushes Treasury prices down) but this morning inflationary concerns have stayed in the back of investor’s mind. The 5-year note has gained 1/32s to yield 1.97% while the benchmark 10-year Treasury is currently up 1/32s to yield 3.11%; by contrasts the 30-year has dropped 6/32s so far to yield 4.11%. The Producer Price Index (PPI), which measures the change in prices received by domestic producers in all stages of processing (crude, intermediate materials and finished goods), rose more than expected last month to 0.30%, vs. the expected 0.20%. An important factor for this number was a 2.60% change in gasoline prices and a 1.50% in food prices (versus the previous month’s drop of 13.10% and 0.70% respectively). Nevertheless Core PPI, which excludes the volatile food and energy sectors rose 0.10% for the month; in line with analysts’ expectations. Both PPI and core PPI year-over-year readings were in line with expectations at -3.70% and 3.40% respectively.
Dissipating last week’s better than expected report, the Department of Labor announced that Initial Jobless Claims rose by 32,000 to 637,000 for the previous week. Analysts were expecting claims to only reach 610,000 for the period. The less volatile 4-week average number of initial claims also rose 6,000 from the previous week to 630,500. Continuing Claims increased 209,000 to yet another record at 6.560 million.
Source: Bloomberg LP by The FI Strategies Group RBC WM
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