Durable Goods Orders Bounce Back

Rates little changed, a more common theme in 2024. Swap rates and UST yields rose 3-4bps in the morning after durable goods ordersrebounded significantly from January. However, strong demand at today’s $67B 5y UST auction drove rates lower in the afternoon, and rates closed 1-3bps lower. Relatively muted rate moves have become more commonplace this year as interest rate volatility has declined from 2022-2023 decade-long highs. The MOVE interest rate volatility index is at its lowest level since December 2021. This week’s PCE data could provide a spark, especially after recent CPI and PPI data were higher than expected.

Durable goods orders climb for first time since December. February’s preliminary durable goods orders data exceeded expectations, rising1.4% vs. the 1.0% estimate, a steep increase from January’s 6.9% contraction (revised downward from 6.2%). The largest contributor was transportation orders growth, which drove 0.9% of the overall results, rebounding from last month’s seasonal decline in Boeing aircraft contracts. Viewed in tandem with the 0.7% climb in capital goods orders, a key measure of business investment, the results were viewed as a positive signal for US manufacturing growth. Deputy Chief U.S. economist at Capital Economics Andrew Hunter said, “The data suggest that business equipment investment is beginning to recover, and with corporate bond yields likely to fall a little further over the coming months while manufacturing activity appears to be picking up again, we suspect that recovery has further to run.”

BOE member says there are too many rate cuts priced in. Noted hawk and BOE policy voter Catherine Mann said today that the market is “pricing in too many cuts – that would be my personal view – and so in some sense, I don’t have to cut because the market already is.” Until last week, Mann had voted for a rate hike at every policy meeting since December 2021. Her vote to hike in February 2024 was driven by concerns that markets were “easing too much” based on expectations for imminent BOE rate cuts, which she said has continued after last week’s vote. She concluded by stating that current market expectations are “complacent.”