Good Thursday AM,

This has not been a good week for bonds and rates.

The limited data we have seen has for the most part been stronger than markets expected and are comfortable with. Today is no different.

• Housing Starts 1.4600M vs 1.426M
• Build Permits 1.495M vs 1.480M
• Initial Claims 187K vs 207K
• Philly MFG -10.6 vs -7

The ten-year treasury yield has risen 20basis points this week which equates to a .2% rise in rates. I’m not at all worried that rates will shoot back up, as it isn’t ever going to be a straight line up or down. We had a first leg down in rates and then a pullback, so we are setting up for the next leg down. The movement this week has been from a combination of some B list stronger data and expectation for a Fed rate cut in March dropping from 80% to roughly 50% today.

On this week’s move in bond yields:

The 2 -10 yr spread which is often precursor to a recession and which has been inverted for 20 months (the precursor is not the inversion but when it then un-inverts) un-inverted on Tuesday but has since steepened to roughly -20bps. Far less than the 100+ bps just a few months ago, but clearly markets are uneasy now.

A quick snippet on rates from Bloomberg:

Bond traders are heeding central bank warnings and abandoning wagers that the Fed will cut interest rates in March. They’re now seeing around a 50% chance of a quarter-point reduction in the federal funds target in the first quarter versus a rate cut in March that was seen as almost a sure thing last month. Behind the rethink: stronger-than-expected US retail sales and hotter-than-anticipated domestic inflation data. The two-year Treasury note’s yield, more sensitive than longer maturities to Fed moves, has risen 18 basis points since last week, to 4.32%.

Please remain safe and stay healthy, make today great!