Rates Climb Ahead of Tomorrow’s Quarterly Economic Data

Rates grind higher ahead of tomorrow’s data slate. The swap curve bear steepened today, with the short end rising 2-6bps and the long end climbing 7-8bps. The move came ahead of tomorrow’s GDP, PCE, and durable goods figures, which could provide a volatile session. Q1 GDP is expected to be revised higher to 1.4% from 1.3%, PCE is expected to remain flat at 3.6%, and durable goods are forecasted to decline from +0.6% to -0.4% in May. Meanwhile, equities generally rallied today as the NASDAQ led major indices with a 0.94% gain.

New home sales decline to lowest since November. 619,000 new homes were sold in May vs. 633,000 expected and below last month’s upwardly revised result of 698,000. The decline was driven by familiar themes – elevated mortgage rates and high home prices. Interestingly, the sales dip comes amidst the highest supply of new home inventory since 2008, with 481,000 single-family homes up for sale in May. Given the supply-demand imbalance, the Atlanta Fed sees residential investment declining an annualized 1.3% in Q2, subtracting from overall GDP growth.

Yen falls to its weakest level since 1986. Amid speculation that the Bank of Japan (BOJ) will intervene in FX markets to prop up their struggling currency, the yen fell to over 160 per dollar, a multidecade low. The yen has dropped ~13% in 2024 after opening the year at ~141 per dollar. The move could further increase momentum for incremental rate hikes, which already seemed likely. BOJ Governor Ueda said there is a “good chance” of rate hikes after the BOJ’s most recent policy meeting a few weeks ago.