Is the secondary bond market signaling something?
US Treasury yields were mixed for the week ending April 15, 2016, after the release of mixed economic data. The demand for safe-haven Treasury securities could rise. It would push down yields. Oil producing nations failed to strike a deal to freeze oil production at the meeting in Doha on April 17.
For the week ending April 15, the two-year Treasury yield rose by 4 basis points and ended at 0.74%. The ten-year Treasury yield rose by 4 basis points and ended at 1.8%.
Advance retail sales fell 0.3% in March mainly due to the drop in auto sales. This impacts auto companies like Ford (F) and General Motors (GM). The data indicate that consumer spending is declining. Consumers are cutting discretionary spending especially on cars, clothes, restaurants, and online shopping—like Amazon.com (AMZN).
The CPI (consumer price index) rose 0.1% month-over-month in March. It fell 0.2% in February. The CPI rose 0.9% YoY (year-over-year) in March. The rise in oil prices was partly offset by a drop in the cost of food. The core CPI excludes food and energy prices. It rose 0.1% month-over-month and 2.2% YoY in March. The Fed’s target inflation rate is 2%. The weak global outlook and subdued domestic inflation may not give the Fed enough confidence to go ahead with another rate hike in the coming months even though the labor market is getting stronger.
Meanwhile, the University of Michigan showed that the consumer sentiment index fell to 89.7 in April—the lowest since September 2015—from 91 in March. This shows that consumers were concerned about slowing economic growth. It would reduce the pace of job creation.
Performance of mutual funds and ETFs
Investors can get exposure to Treasury securities through mutual funds and ETFs. For the week ending April 15, the iShares 20+ Year Treasury Bond Fund (TLT) fell 0.1%. The iShares Core US Aggregate Bond (AGG) rose by 0.1%. The Vanguard Long-Term Treasury Fund – Investor Shares (VUSTX) and the MFS Government Securities Fund – Class A (MFGSX) fell by 0.2% and 0.1%, respectively.
In the next part, we’ll look at the 30-year Treasury bond auction.