Bond Market Update

Data Recon

• Personal income increased 0.3% month-over-month in December, as expected, following an upwardly revised 0.4% increase (from 0.3%) in November. Personal spending was up 0.4% month-over-month (Briefing.com consensus: 0.2%) following a downwardly revised 0.4% increase (from 0.5%) in November. The PCE Price Index jumped 0.4% month-over-month (Briefing.com consensus: 0.3%), while the core PCE Price Index, which excludes food and energy, also rose 0.4% month-over-month. On a year-over-year basis, the PCE Price Index increased 2.9%, versus 2.8% in November, and the core PCE Price Index increased 3.0%, versus 2.8% in November.
  • The key takeaway from the report, other than the fact that spending outpaced income in December, is that the core PCE Price Index sported a 3-handle on a year-over-year basis. This is a key inflation gauge for the Fed, and it doesn't hold the key to a near-term rate cut.
• The Advance Q4 GDP report also had a mixed tone. Overall growth was disappointing, with real GDP increasing at an annual rate of 1.4% (Briefing.com consensus: 3.0%) on the heels of a 4.4% increase in the third quarter. The GDP Price Deflator increased 3.6% (Briefing.com consensus: 3.3%) versus 3.8% in the third quarter.
  • The key takeaway from the report was the combination of weak growth and stubbornly high inflation in the fourth quarter, both of which run afoul of a market narrative that has been concentrated on stronger growth and lower inflation.
• Yield Check:
  • 2-yr: +1 bp to 3.48%
  • 3-yr: UNCH at 3.50%
  • 5-yr: UNCH at 3.65%
  • 10-yr: UNCH at 4.08%
  • 30-yr: +1 bp to 4.71%