Rates Fall While Markets Mull Consumer Spending Slowdown

Treasurys rally to close the week. Swap rates and Treasury yields fell significantly across a flattening curve today. The 2-year yield declined ~3bps to 4.86%, bringing their weekly gain down to +4bps. Meanwhile, the 10-year yield fell over 10bps to 3.95%, which is ~11bps lower than its weekly peak of 4.06%. Equities had their best day in weeks, with the NASDAQ Composite rising 1.97% on the day.

Strong consumer spending may be showing cracks. Americans continue to spend, with the household savings rate falling below 5% for the first time since 2009, but markets are carefully watching for a spending pullback which may push the U.S. into a recession. In 4Q22 spending was strong, but recently Lowe’s, Best Buy and Target management have said they see the potential for revenue decline in the coming months. Interestingly, higher income consumers have been spending less, a trend that fits within the “white collar recession” theme in recent months. Walmart has seen gains from families with incomes over $100,000 and the CEO of Dollar Tree recently said that “the current economic climate is driving more higher income consumers into value retail”.  

Week ahead. Fed Chair Jerome Powell will testify to the House Financial Services Committee on Tuesday and Wednesday. Nonfarm payrolls and unemployment data on Friday will highlight an otherwise quiet data week.