The ten-year Treasury ended the trading session at 2.98%, a basis point below Wednesday’s close. The front end of the curve was also bid, as the two-year fell two basis points to 0.59%. Once again, the belly of the curve outperformed, as evident by the fall in yield on the five-year by three basis points to 1.66%. The Long Bond, after falling in the morning, made up for the losses to end flat at 4.07%. In the credit markets, swap spreads continued to narrow by one to two basis points along the curve. Long end swap spreads have once again turned negative on the long end of the swap curve (10’s and 30’s). Equities were in the red for a second day today on mixed earnings. The trade weighted U.S. Dollar Index ended slightly lower on the day as the Euro continued its rebound. Gold spot price gained 0.4% to 1168.25. Crude oil rose 1.7% to $78.36.
The advance release of Q2 GDP revealed that economic growth slowed to 2.4% (CF 2.6%) from an upwardly revised 3.7% growth rate in Q1. Of note, personal consumption declined much more than expected to 1.6% (CF 2.4%). The Commerce Department also released its annual revisions with all prior growth estimates revised much lower. The report shows that the economy shrank 4.1% from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7% previous drop. Household spending fell 1.2% in 2009, twice as much as previously projected, the biggest decline since 1942.
Other relevant economic data to be released today include the employment cost index, the Chicago PMI, and the final University of Michigan consumer sentiment. The Chicago PMI is expected to slip to 56 in July from 59.1 in June, suggesting that the June manufacturing slowdown has continued into July. Also, the University of Michigan's index of consumer sentiment, after falling sharply to 67 in July, is expected to rebound slightly.
Next week, the market will hopefully gain more clarity on the health of the U.S. economy as Non Farm Payrolls highlight a string of important economic data. Claims data plays a significant role in forecasting payrolls and the unemployment numbers. As of today, economists are expecting Non-farm Payrolls to decline 95 thousand, as government census workers wrap up their employment. More importantly, Private Sector Payrolls are expected to increase by 110 thousand. Last month, companies added only 83 thousand people to the workforce. Finally, the Unemployment Rate is expected to tick up to 9.6% from 9.5% set in June.
U.S. Treasury is expected to announce $34 billion threes, $23 billion tens and $16 billion 30s at next week’s refunding.
In early morning trade, Treasuries are trading higher on the weak GDP report. The ten-year Treasury note has renewed its bullish trend with the current yield approaching 2.9%. On the front end of the curve the two-year Treasury has reached a new record low yield of .52%. Equities are selling off in pre-market trading with the S&P trading lower by 11 points.
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