Economic Commentary
Thursday, July 29, 2010
Treasury security prices rallied Wednesday as the Fed's beige book report showed economic growth slowed in some areas and another report showed durable goods orders unexpectedly fell last month. The yield on the two-year note fell two basis points to 0.61% while the 10-year note yield dropped six basis points to 2.99%. Even as Treasury note yields fell, 30-year Treasury bond yields touched a two-week high, pushing the spread in yields between them and 10-year notes to its widest level since July 2003. The Treasury sold $37 billion of five-year securities in the smallest auction of the debt in a year. The sale drew a yield of 1.796% with a bid-to-cover ratio of 3.06, the highest level since August 2006.
In its latest beige book report, the Fed said economic conditions continued to improve in most of its 12 regional districts, but the advances were modest, with retail sales posting only small gains and housing and construction remaining weak. Bank lending, meanwhile, was still tight. The Atlanta district -- which includes Alabama, Florida, Georgia, and portions of Louisiana and Mississippi -- noted concerns about lower leisure travel to the Gulf Coast.
Orders for durable goods fell 1% in June following a revised 0.8% drop in May, the Commerce Department reported yesterday. Transportation sector orders dropped 2.4% for the month and 18.8% year-over-year after a 6.6% decline May. Weakness was led by a 25.6% plunge in orders for non-defense aircraft and parts. Offsetting that decline was a 2.9% increase in motor vehicles and parts orders and a 6.5% rise in demand for defense aircraft. Durable goods inventories rose 0.9%, marking the fifth consecutive strong monthly advance, but still remain 10.7% below the late-2008 peak.
The Mortgage Bankers Association reported yesterday that mortgage applications fell 4.4% in the week ended July 23, reversing roughly half of the prior week's gain. Nevertheless, for July overall applications rose 15% from June and by nearly one-half from July 2009. Last week's decline was led by a 5.9% drop in refinancings although they remained more than double the level from a year ago. Higher applications to purchase a home offset some of that decline with a 2% weekly increase. Nonetheless, they still fell 3.6% from June and remained near the lowest level since early-1997.
The information contained herein has been obtained from sources deemed to be reliable: however Southeast Corporate does not guarantee its accuracy or completeness. All opinions and estimates included in this report constitute Southeast's judgment as of the date of this report and are subject to change without notice.
