Treasury Yield Curve Flattens With Mixed Data, Thin Volumes

US trading volumes in both the stock and bond markets were very thin again today, as major equity indices held just above flat for the session following a boost from the healthcare and technology sectors.  Treasurys rallied for a fourth consecutive day, with yields/swap rates 1-8 bps lower across the curve in a bull flattening pattern.  The yield on the 10-year note is down more than 6bps to 2.41%, its lowest level in more than a week.  The US dollar fell to a three-week low, down 0.3% against major currencies on the day.  In commodities, crude oil fell from a 2.5-year high as WTI crude futures was down 0.65% to $59.60/barrel.  The price of copper jumped to near a 4-year high after the Chinese government forced its top producer to shut down operations in an effort to reduce pollution during the winter months.  Jiangxi Copper Company was told to cease production for at least a week while the current pollution levels were tested.

 

Key economic data released today was highlighted by the Conference Board’s consumer confidence index, which remained high at a reading of 122.1, albeit below forecast of 128. A weakening outlook for the business and jobs markets weighed heavily on the index, although American consumers’ views of the economy’s current conditions actually improved.  Pending Home Sales for November were also published today, and showed strength at +0.5% month-over-month vs. a 1.0% decline expected.  Compared to a year earlier, pending sales rose 0.8%, representing the first YoY gain since June, as steady employment and persistently low inflation rates continue to prop up the housing market.

 

 

Only Positive Surprises Here

The better-than-expected Pending Home Sales data is yet another example of the recent positive trend in economic data that have exceeded median forecasts.  As compiled by Citigroup, the US economic surprise index is currently near its highest levels in the past six years (84.5 reading) – meaning that as of last week, the number of key economic data points coming in above expectations is higher than it has been since 2011.  This could be a result of weaker expectations or a stronger economy (or both), but as per the history of the index, it seems like a reversion to the mean may be in store for 2018, where a downward move in the index would typically be correlated with a deceleration in the stock market.