US Sells Bonds at a Price

Equities appear due for a pullback but treasury bond yields may continue higher regardless due to extent of new supply to fund the deficit.  Did you see the near failure of the 30-year auction today? The treasury had to raise the yield significantly to sell the bonds. This is what drove yields skyward today.

If we do see any Fed buying of treasuries, which I now fully anticipate, that may will be the lowest yield we see for some time before it continues higher. People are starting to worry about the US government’s finances now and whether it can fund them or not, and even if they can, at what yields.

Stagnation is my new concern: second derivative growth but no first derivative or outright growth. Put another way, the deterioration slows, we stabilize, but we don’t grow.

On the economy, initial jobless claims have peaked. The number of jobless will increase, but at a declining rate. For the latest week, new claims were much lower than expected at 601k, down from 635k the week before. The 4-week moving average of initial claims, a less volatile measure, fell for the fourth week in a row to 624k from 638k, and may show that the rate of increase in jobless claims has peaked. Job losses look like they have peaked with the 13-week or 3 month average up 78% compared to a year ago, but down from the 81% rate of increase 3 weeks ago.

Weekly initial jobless claims data show the amount of people who have been fired in the past week and put in claims for unemployment benefit. This is a good representation of the current state of the labor market, a major factor in consumer spending plans.

In other economic news, retail stores reported April sales figures that beat expectations. At the same time, consumer borrowing dropped 5.2% in March, the biggest decline since 1990. The personal savings rate rose to 4.2% in March, the first time in 10 years that the savings rate has been above 4% for 3 straight months. So even though sales are rebounding off lows, with borrowing dropping, savings increasing, and the jobless rate to reach double digits, there is little likelihood of a consumer led boom, more a stabilization, or worse stagnation, i.e. no growth, neither up nor down.

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