Interest Rate Roundup

Wednesday, January 02, 2008

Rates plunging on fresh "economic slump" news

It's a raucous first trading day of 2008 in the interest rate markets, with 2-year Treasury note yields plunging by more than 16 basis points and the long bond futures up more than a point. What's driving these big moves? The dismal Institute for Supply Management report for December.

The ISM index sank to 47.7 from 50.8 in November. That was much worse than the 50.5 reading economists had expected, and the lowest level for this key indicator since April 2003. Among the sub-indices, new orders fell to 45.7 from 52.6 ... employment was roughly unchanged at 48 vs. 47.8 ... and prices paid was also roughly unchanged -- 68 vs. 67.5 in November.

On the other hand, construction spending came in STRONGER than expected in November -- +0.1% vs. a forecast for -0.4%. Public construction was particularly strong at +2.5%. In the private market, residential spending dropped another 2.5%. That's the 21st consecutive month of declines, with the November drop being the largest for the cycle.

Meanwhile, private nonresidential spending gained 1.7% -- the 14th consecutive gain. I doubt that strength in nonresidential spending will persist now that the overall economy is slowing, layoffs are rising, and retail spending is cooling, to say nothing of the fact commercial real estate lending standards are tightening. This Chicago Tribune story is worth reading if you're interested in that side of the business.


Post a Comment

<< Home

Site Meter