Good Friday morning from your Hometown Lender,

A little more data today again confirming an economic slowdown.

Both import and export prices fell (as in negative, not less positive) and the Consumer Sentiment reading tanked… Consumer sentiment is always a good forward-looking indicator as opposed to most other indicators which look backwards. Treasury bonds continue to improve. The 10-yr is now ay 4.22% and we could get into the teens quickly. Mortgage Bonds not having the same stellar move as they have pulled back a little. Still, we are seeing pricing improve quite a bit this week. 

Here is a good recap from Bloomberg (they have been on point this week)

This week’s Federal Reserve decision ended up playing second fiddle to inflation data. The closely watched core consumer price index, which excludes food and energy costs, stepped down for a second month in May, data released Wednesday showed. The surprise miss boosted investor hopes that cost pressures will stop being so sticky. 

The bond rally picked up pace Thursday as separate figures showed US producer prices unexpectedly declined in May. That helped drive strong demand at an auction of 30-year Treasuries, and sent yields across the curve to the lowest since April. It also put Bloomberg’s gauge of US government debt very close to erasing this year’s declines — which peaked at a 3.4% loss through April 25.

The moderation took most of the sting out of the Fed’s new dot plots, which projected just one rate reduction this year, rather than the three that had been penciled in at the March gathering. It helped too that Chair Jerome Powell signaled the door is open for two reductions.

Bond investors are back to fighting the Fed by anticipating more easing than the central bank said it expects. Swaps traders are positioning for almost 90% odds that the Fed delivers two rate reductions — after briefly pricing that in as a certainty after the CPI data.

The relief was palpable across most of the fixed income world, after signs earlier in the week that strong May jobs data prompted some bond bulls to exit positions. Higher-for-longer is meantime boosting the performance of money-market funds — now managing a record $6.12 trillion. The confidence investors are showing that the Fed will deliver more cuts than it expects, may partly also be explained by concerns that a broad economic slowdown is coming. Large swaths of the economy are putting off plans for major purchases. 

Stay safe, happy Father’s day, and make today great!