UST Yields Fall on Weak Economic Data

Economic data and Fed commentary fuel rate decline. Weak consumer sentiment and ISM manufacturing data largely drove a ~10bp rate drop from morning peaks, while commentary from Fed Governor Waller and Fed President Bostic contributed as well. Waller stated that he would like the Fed to increase holdings of short-term USTs, while Bostic said that he doesn’t “want to have to raise rates again.” Rates closed 5-9bps lower on the session after a small rise in the afternoon. Elsewhere, equities started March on a positive note after significant gains in February, where the S&P 500 and NASDAQ rose nearly 5% and 5.5%, respectively. The former climbed over 0.80% today to a new all-time high while the latter rose by 1.14%.

US manufacturing activity and consumer sentiment decline. ISM manufacturing data released today showed that US factory activity declined for the 16th straight month. The index was 47.8 in February vs. an estimated 49.5 – a value less than 50 indicates contraction. Chair of the ISM Survey Committee Timothy Fiore commented on the results, saying, “Suppliers continue to have capacity but are showing signs of struggling, due in part to their raw material supply chains.” Looking ahead, Fiore views this month’s result as a bump in the road and expects manufacturing expansion by April. Consumer sentiment in February also declined by the most since March 2020, driven by a worse outlook on the economy.

Euro-zone inflation was higher than expected in February. Consumer prices rose by 2.6% (YoY) in February, higher than the 2.5% forecast but lower than January’s 2.8% print. Excluding November’s data (+2.4%), this CPI print was the slowest rate of growth since July, 2021. The data comes ahead of next week’s ECB policy meeting, where a pause is effectively locked in. Futures currently have ~100bps of accommodation priced in for 2024, with the first rate cut expected in June.