Recap : Where will yields go?


In what seems to be a seasonal replay of years past, global growth momentum seem to be slowing again as we start spring. The PMI figures we’ve gotten over the past few days are on average, all below the recent highs.

GS notes, however, that: Temperature data released this morning indicate that March is likely to prove at least as unseasonably cold as February… Our statistical model suggests that despite the continued cold, the lack of major snowstorms in March should provide substantial relief to the economic dataflow. In particular, we expect boosts to employment indicators such as hours and payrolls, housing indicators such as construction and starts, and spending indicators such as retail sales and vehicle sales.

The disconnect between economic surprises and 5y yields, which I’ve noted over a month ago, has widened. That’s something that’s really not sustainable over the longer run, so we’ll see which series converges to the other.

At this point, longer term indicators suggest that the slowing is likely to be short lived, but given where we are relative to expectations, the risks are to the downside. As I’ve noted before, the larger question is whether assumptions for the US trend growth rate need to be revised lower still. The average FOMC participant estimate for the longer term (i.e. terminal) Fed Funds rate has fallen ~30bps over the past year:

FOMC Date Longer Term

1/25/2012 4.206

4/25/2012 4.191

6/20/2012 4.105

9/13/2012 4.066

12/12/2012 4.039

3/20/2013 4.013

6/19/2013 4.013

9/18/2013 3.926

12/18/2013 3.882

3/19/2014 3.875


  • PMI Roundup:
  1. US: ISM improved to 53.7 vs 54 exp and 53.2 prev. Markit measure stable at 55.5 vs 56 exp
  2. UK: declined to 55.3 vs 56.7 exp and 56.9 prev
  3. Italy: stable at 52.4 vs 52 exp and 52.3 prev
  4. Australia: declined to 47.9 vs 48.6
  5. China: stable at 50.3 vs 50.2 prev. HSBC measure was also stable


  1. Dwelling prices have increased significantly over the past year.
  2. On present indications, the most prudent course is likely to be a period of stability in interest rates.

Pimco notes that Australia capex intentions have ticked higher:

Eurozone banks hold more sovereign debt that at any time since the crisis years – FT

The GOP has gained ground relative to 2012 among registered voters, not just likely voters… If the GOP picked up 2.7 points in 2014, it would win by 1.5 points. Historically, that margin would suggest a Republican gain of five to nine seats (there’s a large margin of error, plus or minus 12 seats, in that calculation). 538

Turkish local election results showed a landslide win for PM Erdogan

In a development that could fuel concerns about China’s financial system, the nation’s four biggest banks disclosed for the first time that they have sold about 2.8trn yuan ($450bn) in wealth management products for which they did not guarantee the principal as of Dec. 31. The figure, based on data disclosed by Monday, is equivalent to around 30% of the total balance of such products sold by these top 4 banks based in China.

Upcoming Data:

  • Wed: UK House Prices, EU PPI, US ADP, Australia Retail Sales, Trade Balance, China PMI
  • Thu: EU PMI, ECB, US Jobless Claims, Markit PMI, ISM Non-Mfg
  • Fri: US Employment, Canada Employment,
  • Mon: BoC Business Outlook Survey, Australia NAB Business Confidence, Japan Eco Watchers Survey
  • Tue: Canada Housing Starts,