It was a fairly one-dimensional day for bond markets, and indeed, markets in general. Despite moderate strength in European bond markets overnight, US Treasuries remained unwilling to break below yesterday afternoon's lowest yields. Slight gains in equities futures didn't seem to be helping.
The tone changed after the morning's release of GDP and Durable Goods data. While GDP is often able to be overlooked as "stale," today's release was the "advance," meaning it was our first look at Q4's numbers. They were slightly weaker than expected at 1.9 vs 2.2 forecast. The "final sales" component was even weaker (+0.9 vs +2.3), meaning business inventories accounted for more than half of Q4 growth.
Durable Goods was more of a mixed bag. The headline was quite weak (-0.4 vs +2.6 forecast), but the important internal component "Nondefense Cap Orders Excluding Aircraft" ("Cap-ex") came in at +0.8 vs +0.5 forecast. Capex was also revised higher in the previous month (+1.5 vs +0.9).
The counterpoints available for the Durable Goods report likely accounts for some of the back and forth seen in the immediate wake of the data. As the morning progressed, however, investors decided there was a "risk-off" message that counteracted some of this week's "risk-on" momentum. Bonds rallied, and stocks joined in the move lower at the 9:30am NYSE open.
Bonds edged into moderately positive territory by the close, with 10yr yields down 2.55bps at 2.486. Fannie 3.5s are 6/32nds higher at 102-01. Several lenders repriced positively, but most were able to capture the stronger trading levels in their initial rate sheets.