MBS OPEN: GDP Slightly Worse Than Expected, Bonds Don't Care

By: Matthew Graham •

MBS and Treasury prices continue their down-trending ways this AM.  4.5's are off 6 ticks at the moment to 100-12 and the 10yr is up in yield to a hefty 3.73.    No major reaction in stocks however which continues a trend of decelerating gains that followed the sun around the globe last night (Asia Strongest, Europe a bit lighter gains, Domestic futures slightly positive).  Bottom line on GDP, it's not moving bond markets this AM.

That said, the internals of the GDP still may interest you.  So here they are:

  • US FINAL Q3 GDP +2.2 PCT (CONSENSUS +2.8), PREV +2.8 PCT; FINAL SALES +1.5 (CONS +1.9), PREV +1.9 PCT
  • DEFLATOR +0.4 PCT (CONS +0.5), PREV +0.5 PCT
  • PCE PRICE INDEX +2.6 PCT (CONS +2.7), PREV +2.7 PCT; CORE PCE +1.2 PCT (CONS +1.3), PREV +1.3 PCT
  • CONSUMER SPENDING +2.8 PCT (PREV +2.9 PCT), DURABLES +20.4 PCT (PREV +20.1 PCT)
  • MARKET-BASED PCE PRICE INDEX +2.8 PCT (PREV +2.8 PCT), CORE +1.2 PCT (PREV +1.2 PCT)
  • BUSINESS INVESTMENT -5.9 PCT (PREV -4.1 PCT), EQUIPMENT/SOFTWARE +1.5 PCT (PREV +2.3 PCT)
  • HOME INVESTMENT +18.9 PCT (PREV +19.5 PCT),BUS. INVESTMENT IN STRUCTURES -18.4 PCT (PREV -15.1 PCT)
  • EXPORTS +17.8 PCT (PREV +17.0 PCT), IMPORTS +21.3 PCT (PREV +20.8 PCT)
  • Q3 GDP EX MOTOR VEHICLES +0.8 PCT (PREV +1.3 PCT)
  • YEAR-ON-YEAR PCE PRICE INDEX -0.7 PCT (PREV -0.7 PCT), CORE PCE +1.3 PCT (PREV +1.3 PCT)
  • BUSINESS INVENTORY CHANGE -$139.2 BLN, ADDS 0.69 PERCENTAGE POINT TO GDP CHANGE (PREV -$133.4 BLN)

So, you might notice that  notice that every last component listed above is unchanged or BETTER FOR BONDS (i.e. inflation lower, economy weaker, etc...).  This is your evidence, along with the almost non-existent reaction in futures that the market is not trading this data!

But the market IS trading, and trading lower (obviously).  Rate sheets should be moderately worst this AM, but the support in the 10yr so far has put in two consecutively lower yields so far this AM, one just over 3.72 and one just under.  With respect to last night's long long long term Tsy chart below, this would be a bounce within the trend.

Another round of data coming up at 10AM, so stay tuned, should the market actually decide to do something based on data as opposed to illiquid, choppy, year-end trading patterns.