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The bond slouch

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Newswires are declaring a bond slump. For economists it is a bit more of a bond slouch. Real yields remain low and nominal yields are below nominal GDP in most instances (a key metric for debt sustainability).
  • US retail sales data disappointed yesterday – there is a persistent question around consistency (who, for instance, is consuming imports into the US if not the consumer?) but for now the weaker start to second quarter consumption puts more emphasis on a September than a June Fed tightening.
  • US producer price inflation today should start to reflect the consequences of higher energy costs, at least as to the headline figure. The core figure does contain embedded energy costs, but they are not likely to be too evident this month.
  • Chinese lending data came in softer, which might raise some questions about the effectiveness of rate cuts. However the rate cuts are probably more about reducing debt service costs for existing debtors than encouraging new borrowing, and it is the efficacy of other policy measures that need to be examined.