Why Treasury yields fell last week despite positive economic data

Why Treasury yields fell last week despite positive economic data (Part 1 of 7)

Why did both the bond market and the stock market gain last week?

Last week’s Treasury bond market update

The Treasury yield curve shifted slightly downward during the last week despite positive releases such as the Bureau of Labor Statistics’ (or BLS) employment situation report. The report stated that the U.S. economy added 288,000 jobs in non-farm sector during April, much higher than consensus expectation of 215,000.

Treasury yield curve 2014-05-07Enlarge Graph

One reason for the relatively stable yield curve was the outcome of Federal Open Market Committee (or FOMC) meeting which happened on April 29-30.

FOMC stated that the Fed would keep the base rate between 0% and 0.25% for a “considerable period” after asset purchases end. Bond markets interpreted this as a signal that monetary tightening was not imminent, and low rates would stay in the near future leading to slight fall in yields. FOMC tapered its asset purchase program by another $10 billion, to $45 billion a month, as expected.

While most of the economic indicators released during the week showed overall improvement in the economy, the GDP growth for the first quarter of 2014 was disappointing at 0.1% hit by rough weather conditions during January and February. While economists expected the GDP growth to be considerably lower at 1.1% in the first quarter of 2014 compared to 2.6% in fourth quarter of 2013, the growth at 0.1% was much lower than the already sensitized figure of 1.1%.

The yields for long-term Treasuries (TLT) fell by 8 basis points while those of short-to-intermediate term notes (with maturity between three and ten years) (IEF) fell by one to eight basis points. The yields on Treasury bills (BIL) were relatively stable.

The positive economic data propelled the equity markets last week with Dow Jones Industrial Average (DIA) and S&P 500 (SPY) both clocking an increase over the week.

The Realist Discussions

  • Are you kidding me?

    This article was horrible… why did Market Realist even publish it?

    The headline suggests the author is going to explain (or at least give his opinion for) why T-bill rates at various maturities increased / decreased.

    Its a seven part series that merely states the yield changes — this is the sort of cr@p that many media sites generate by computer.

    Shame on Market Realist for publishing such garbage

    • Mayur Sontakke

      Dear guest,

      The first part of the series explains, why, despite positive economic data, the Treasury yields across most of the maturities fell.

      The FOMC’s stand of continuing with the taper didn’t really come as a surprise arresting the possibility of increase in yields on the taper news. While some economic indicators did a good job, others (like GDP) did badly leading to relatively stable yield curve over the past week. It seems like the market is not ready to buy the ‘weather story’ behind bad GDP numbers.

      I hope this answers your question. Feel free to get back to us in case of any query.