The economic good news appears to be canceling out the economic bad news in this mornings bond trading. The 10-year Treasury is flat at +.006% making the rate 4.690%.

The economic news was mixed this morning. At the opening, also the most important, was the GDP. It was anticipated to be +1.5% to 2.0%. It was reported to be +1.3%, not only below the expectations, but lower than last quarter. This should have caused rates to drop.

The low GDP was countered with a far higher than expected Chain Deflator. Expectations were for a reading of 3.0% to 3.1%. This favored measure of inflation was +4.0%. There was some good news when the details were examined. The majority of the price increase was due to higher energy costs.

The PCE portion was above the FED’s target of 2.0%, and was reported at +2.2%, which was what the market was anticipating.

Normally, these two inflation gauges should have caused rates to shoot up. But they were countered by the aforementioned GDP, as well as the Employment Cost Index (ECI).

The 1^st Quarter ECI was lower than it was thought it would be. It was predicted to be +.9% to +1.0%. The Labor department published the quarterly number at +0.8%. This indicates that a wage-price-spiral is not a big factor. That should have moved rates lower.

At 09:00cdt {14:00gmt} the Michigan Consumer Sentiment was reported at 87.0. This was expected to be 85.3 to 83.0.
This far higher number should have impacted rates upward. But, it was offset by ECI which was balanced by PCE, which was tempered by the Chain Deflator, which was balanced by GDP.

Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com