Weak Data Fuels Bond Rally
Weaker-than-expected economic data is supporting gains in stocks and bonds.
Too little corroboration in the last 3 days to call a trend (3 articles). Watching for it to gain traction.
A softer-than-expected payrolls report has provided carryover support to Treasury notes by reducing the perceived probability that the Federal Reserve will need to tighten monetary policy further. This dynamic has created a simultaneous bid in both equities and bonds, as markets interpret weaker labor data as reducing the tail risk of additional rate increases.
The correlation between soft economic data and simultaneous rallies in stocks and bonds reflects a market regime where the Fed reaction function dominates asset pricing, meaning that growth disappointments are paradoxically welcomed as long as they reduce the risk of further monetary tightening rather than signaling a deeper contraction.
"T-notes also have carryover support from last Thursday's weaker-than-expected Jun payrolls report, which reduced the chances of the Fed tightening monetary policy."
"T-notes settled little changed on Friday and found support on the -3% plunge in crude oil prices, which eased inflation expectations. Also, Friday’s weaker-than-expected Apr ISM manufacturing report was bullish for T-notes."
"T-note prices found support on Thursday from weaker-than-expected US economic news. Q4 GDP was unexpectedly revised downward, Feb personal income and spending came in lower than expected, and weekly jobless claims rose to an 8-week high."
"Today’s report showing a slower-than-expected increase in Eurozone Dec core consumer prices eased inflation concerns and sent European bond yields lower."
"Downbeat economic data is delivering gains to stock and bond bulls alike, as weaker-than-expected retail sales and consumer confidence numbers coincide with accelerating job losses and rising odds of a December Fed cut."