Good Friday AM,

The market received an abundance of bond friendly news this morning.

The PCE, Personal Spending, Personal Income and Consumer sentiment all came in nicely. PCE, which is the most important inflation tool the Fed uses, is half of last month’s number. This is huge and hopefully will impact the Fed’s still hawkish point of view. Personal spending and Personal income both dropped and are both important.

So, with all this bond friendly news, why aren’t we rallying more?

Nobody knows the answer, but I do know that often the news takes time to seep in as traders try and figure out the Fed’s next move. I believe we will see further rate improvements in the coming days. This of course assumes that no news comes along and knocks us off the track. The 10-yr note is back to 3.51%. A close below 3.50% is a big deal. Fingers crossed we get there today.

A report into how housing and the economy are doing from Redfin found that more than 8 million U.S. adults live in a household not caught up on rent payments. About 3.6 million adults are also living in households that are not being charged rent. This of course doesn’t define the state of the economy but housing I would say, is an important component. A good number of the available jobs are just not at the pay needed to live comfortably.

And, always interesting (to me) are reading the predictions (and reasoning behind the predictions) on where “we” are heading (economically, industry wide, rates. Etc..). The below piece touches on bonds, rates, recession. I am still in the camp that rates will continue to improve this year. The Fed will have to soften.

Bonds have been jumping all over the place this year, bringing investors to the realization that the haven status of Treasuries may be showing some cracks. How risk-free are US government bonds when you consider the plunge in their value played a key role in the downfall of Silicon Valley Bank? Bond markets settled down this week thanks to a lack of fresh turmoil triggers, though there were still plenty of weird and wonderful disconnects to keep investors on their toes. Chief among those was the question of whether the banking crisis spells the end for interest-rate hikes by the Federal Reserve and others. Some of the heaviest of bond heavyweights found themselves on opposite sides of that debate. BlackRock Inc. said traders betting on rate cuts are just wrong, so it is investing in inflation-linked notes. DoubleLine Capital LP’s Jeffrey Gundlach expects a US recession will start in a few months, and the Fed will need to respond “very dramatically” by lowering its benchmark.

That sets up the next round in this year’s battle royale between bond investors and central bankers. After all, money managers are again favoringbets that government debt will climb, after this month’s rally was turbocharged by the burst of short-covering that hedge funds were forced into. Recession concerns have grown, with the odds for one increasing. Still, the worry is that investors may be exposed to a February-style reversal. After all, policymakers on both sides of the Atlantic are making it clear further tightening remains likely if banking turmoil continues to ease. Philip Lane, the European Central Bank’s chief economist, said interest rates will need to go up under the base case, because “we expect these tensions will settle down.” Fed officials continue to stress the need to contain cost pressures even as they keep an eye on banking strains. “Inflation remains too high, and recent indicators reinforce my view that there is more work to do, to bring inflation down to the 2% target associated with price stability,” Boston Fed President Susan Collins, a non-voter this year, told a conference on Thursday hosted by the National Association for Business Economics in Washington. One possible straw in the wind for those eager to work out whether the rally is close to a peak was the apparent decision by one bold trader to cash in their January bet on a 1.5% Fed cash rate by year-end for an estimated $10 million. They could be deciding risks for rate bets are on the verge of skewing to the upside again.

Please remain safe and stay healthy, make today great!