Prior Week Summary
It was a relatively quiet week for trading in the Treasury markets, as the holiday-shortened week saw yields stay within recent ranges, with the curve settling just a few basis points higher for the week. The front-half of this week could see some elevated volatility in rates as there is an active data calendar with top tier data releases and potentially limited trading as the first quarter comes to a close. The busy data calendar culminates with the release of the April employment report on Friday.
The third release of fourth-quarter GDP was revised higher, to an annualized gain of 1.4%. Despite the relative improvement in the growth rate, there was troubling data relating to corporate profits embedded in the report. Corporate profits, with inventory and capital adjustments, fell 7.8% in the quarter, the largest decline in that data series since the first quarter of 2011. Not surprisingly, the largest declines in profits were registered in the utilities and manufacturing sectors, which fell 28% and 26.1%, respectively. In year-over-year terms, corporate profits have fallen nearly 12%, providing fuel to those analysts who believe the U.S. is on the verge of a recession.
Similarly, the Commerce Department reported that orders for durable goods declined for the third time in the last four months, falling 2.8% in February. Notably, orders for non-defense capital goods excluding aircraft, which feeds into the GDP calculation fell 1.1% for the month, relative to expectations for a gain of 0.3%.
The Look Forward
Relatively active data calendar this week going into quarter-end, with updated data on incomes and spending, home prices, inflation, and the monthly employment report. Interestingly, for those watching the developments regarding negative interest rates overseas, a large Japanese bank is expected to be the first company to issue debt at a negative yield following that country’s negative interest rate policy announcement. That debt is expected to be issued later this week.