Volatility is still plaguing the bond market today, in response to a number of economic reports announced this morning. The 4th Quarter Gross Domestic Product (GDP) showed that our economy is continuing to contract with a reading of 3.8%. This is the slowest pace in the last 26 years, and it bring the total growth over the past year to a paltry 1.3%. Though these are ugly reports, they did come in better than expected.
Consumer Sentiment was also reported this morning, with a reading at 61.2 (lower than the expected 61.9). Coupled with the Chicago Purchasing Managers Index at 33.3 that was lower than expected, this further supports the contractions we are seeing in the economy. Not surprisingly the unemployment rate rose .5% in the 4th quarter. We should expect these trends to continue through much of this year, as the economy tries to find some solid footing.
Currently, Mortgage Backed Securities are flat on the day, but they are off of earlier morning highs. For now we are floating since much of the damage in the bond market has already occurred over the past couple of days. Hopefully we will see some buy back, which should help boost bond prices. Also, the Treasury’s bond auctions went fairly well this week, with a solid foreign participation. This should help bonds to recover some of the recent losses.
