Bond Market Update

Data Recon

• The July Retail Sales Report was a good report that was made even better by the upward revisions to the prior month's data. Total retail sales increased 0.5% month-over-month, as expected, following an upwardly revised 0.9% (from 0.6%) in June. Excluding autos, retail sales increased 0.3% month-over-month, as expected, following an upwardly revised 0.8% increase (from 0.5%) in June.
  • The key takeaway from the report, which isn't adjusted for inflation, is that it reflects a decent pace of consumer spending that isn't owed entirely to price increases; however, it does reveal a few points of spending caution, evidenced by the 0.6% decline in electronics and appliance stores, the 1.0% decline in building material and garden equipment and supplies dealers, and the 0.4% decline in food services and drinking places.
• The July Import and Export Price Indexes sent some mixed signals. Import prices were up a sizable 0.4% month-over-month, but down 0.2% year-over-year, on the heels of a 0.1% decline in June. Excluding fuel, they were up 0.3% month-over-month, and up 0.9% year-over-year, following a 0.3% decline in June. Export prices increased 0.1% and were up 2.2% year-over-year. Excluding agricultural products, prices were also up 0.1% and up 2.0% year-over-year.
  • The key takeaway from the report is the uptick in import prices, which is clouding the inflation outlook in the sense that it is keeping the market guessing as to whether tariff inflation is going to ramp in coming months or if this is just a one-time bump in the road.
• The August Empire State Manufacturing Survey showed a nice uptick to 11.9 (Briefing.com consensus: 0.0) from 5.5 in July. The dividing line between expansion and contraction for this survey is 0.0, so the August reading reflects manufacturing activity for the New York Fed region picking up pace from July.
• Yield Check:
  • 2-yr: -2 bps to 3.72%
  • 3-yr: -2 bps to 3.68%
  • 5-yr: -2 bps to 3.81%
  • 10-yr: -1 bp to 4.29%
  • 30-yr: +1 bp to 4.89%