Rates Rise Despite Unexpected GDP Decline

Treasuries extend selloff, equities rise on earnings beats. The tech-heavy Nasdaq paced major US stock indices, rising more than 3% after Meta Platforms (Facebook) released higher Q1 user growth than expected– boosting its share price by nearly 18% on the day. The risk-on sentiment saw UST yields rise 2-8bps across the curve in a bear flattening pattern. And within currency markets, the US dollar hit a 20-year high against a basket of major currencies. A portion of the dollar’s rise could be attributed to the Bank of Japan’s ultra-accommodative stance, where this morning BOJ officials updated their commitment to buying 10y government bonds DAILY (previously ad hoc basis) to keep the yield below their 0.25% cap level and not rising similar to yields overseas (see: UST 10 yield at 2.85%).

GDP shrank by an annual rate of 1.4% in Q1. The Q1 reading falls well below the forecasted 1% rise and marks the first economic contraction since the start of the pandemic. The report comes on the heels of a 6.9% gain in Q4 of 2021 – the largest annual rise since 1984. Despite a 2.7% increase in consumer spending, a multitude of other factors inhibited growth – exports fell by 5.9%, imports increased 17.7%, defense spending declined by 8.5%. The core PCE index, the Fed’s preferred measure of inflation, hit 5.2% in Q1, well above the bank’s 2% target.

Initial jobless claims decline by 2.7% to 180k, in line with expectations. Claims have now held below the 200k threshold for the past ten weeks. The four-week moving average rose slightly to 179,750 but remains well below the 2019 pre-pandemic weekly average of 218,000. The number of people continuing to collect unemployment benefits moved down to 1.408 million, the lowest number since February 1970.