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From some reports, you’d think the dreaded 4 horsemen were at hand. While the Bond Market Review is not in that camp, the worst locust plague in 70 years in Africa earlier this year, the arrival of ‘murder hornets’ in North America, and the continuing economic hardship and health pressures caused by Covid–19 are more than enough to deal with. One of my favorite lines from ‘No Country for Old Men’ is when deputy Wendell poses a question to Sheriff Ed Tom Bell at a crime scene. He says: “It’s a mess, ain’t it, Sheriff?” Ed Tom Bell (portrayed very well by Tommy Lee Jones) responds: “If it ain’t, it’ll do till the mess gets here!” While one might think the country’s leaders would rally around our current ‘mess’, they’re as divisive as ever. You’re probably as exasperated as we are on that subject, so we’ll leave it there. When you’re watching the ‘news’ and throw something at the TV, make sure you miss!

While not (yet) happening for baseball, for the economy the hits just keep on coming. April’s data has been the stuff of nightmares with shattered records of the bad kind. While May will offer its own set of challenges, it’s unlikely we’ll see many of April’s negatives surpassed in the future – as the monthly changes were of such great magnitude. April saw the loss of over 20.5 million jobs and a 10.3% jump in the Unemployment Rate (to 14.70%). April Retail Sales fell the most ever with a 16.4% drop – with some categories suffering staggering declines. (The March decline of 8.3%, which was revised a little better from –8.7%, had been the worst since data back to 1992.) While we tend to think about supporting our local restaurants, those businesses (and bars) fell 48.7%. Furniture stores dropped 66.5%, electronics and appliances fell by 64.8%, and sporting goods sales were off by 48.9%. Motor vehicle sales dropped 32.90% and Retail less autos fell by 17.2%. Sales were off 21.61% versus April 2019. On the plus side, grocery stores gained 13.2% and online sales rose by 21.6%! Q2 GDP could decline as much as 25 to 40%. The New York Fed is projecting –31.05% GDP and Atlanta (GDP–Now) is forecasting –42.8%. St. Louis also forecasts below 40%!

In one of the numbers that likely will worsen given the willingness of the government to throw money at problems, the deficit for 2020 is now the highest ever versus the first 7 months for previous fiscal years. If any month is likely to show a surplus, April is normally the best shot – as it was in most previous years. However, the $737.9 billion shortfall in April sent fiscal 2020 to $1.48 trillion – 179% above and $950.4 billion worse than fiscal 2019 (to date).

Looking Ahead

  • Equity cycles show a potentially significant trend–change high due near May 20th.

  • Bond cycles show yields making highs near May 21st/22nd. Lows are due near June 3rd/5th.

Treasuries, Agencies, and MBS

It’s no surprise that the auction sizes are increasing to records – but the winning results are hitting the lowest awarded yields as well. Next week will mark the first 20–year auction. Though a $20 billion supply is set for next Wednesday (05/20), the bonds are scheduled to mature on May 15th, 2040. That would be in keeping with the 10–year note and 30–year bond which have coupons on the 15th. If possible, the Treasury tries to reopen previous offerings to keep maturities in February, May, August, and November.

We continue to think short yields (beyond T–Bills) will trade negative. It’s not our opinion, not a strategy with which we agree, and frankly not the best idea. However, our cycles and targeting are making a case for 2–year notes yielding 5 to 12 bps below zero. The Fed target is already close to zero, with a recent effective rate of .04% to .05%. The latest price data shows deflationary forces holding the upper (or lower) hand. Core CPI just fell the most ever. Yields may have nowhere (else) to run to – and nowhere to hide.

Minneapolis FRB President Neel Kashkari said “the worst is yet to come on the job front, unfortunately.” Like the BMR, he thinks the real unemployment number is 23 to 24%.

Fed Chair Jerome Powell reaffirmed the FOMC is not considering negative rates “for now” saying they prefer the ‘good toolkit’ they have. He’s in favor of fiscal support that, even if costly, could prevent long–term economic damage leading to a stronger recovery. Outside the U.S., the IMF said the global outlook has worsened, the ECB said the EU has bottomed, and the German economy fell hard.

The Fed upped its balance sheet by $212.8 billion through Wednesday to bring its size to $6.934 trillion. It should pass $7 trillion over the next few days and J.P. Morgan analysts expect the Fed to own 40% of the total agency MBS supply by year end. Though employing surrogates for some purchases, the Fed bought $305 million ETFs this week and is expected to continue those type of purchases to support corporate debt. Last week, the curve again twisted steeper with 2 and 5–year rates falling by 3 and 1.5 bps while yields for the 10 and 30–year sectors rose by 7 and 13.5 bps. Yields were lower through Thursday, dropping by 1, 3, 6, and 9.5 bps for the 2, 5, 10, and 30–year Treasury sectors. Near midday yields were 1 to 3 bps higher (versus Thursday). Q1 Mortgage Delinquencies rose from 3.77% to a 4.36% pace. MBA Mortgage Foreclosures dropped from .78% to .73%. Of course, Q2 will be of greater focus.

The Treasury sold $42 billion 3–year notes on Monday (05/11) at a record low .23%. Demand rose to April and the buying group that includes foreign central banks accounted for 54.4% – down from 55.4% in April. $32 billion 10– year notes came at .70% on Tuesday – also a record low yield with increased demand. Foreign buying increased from 59.2% in April to 66.1% this week. Wednesday’s $22 billion 30–year bond auction brought 1.342% (just above March’s record low 1.32%). Demand was the lowest since November and foreign buying at 65.7% was a little lower than April’s 66.4%. Last week, MBS spreads (FNMA 30–year 2.5%) widened by 7 bps.

Treasury Yield Curve

2-Year: 0.160%

5-Year: 0.335%

10-Year: 0.685%

30-Year: 1.385%

Weekly Yield Change +.021%



Support 0.164/ 0.184/ 0.204/ 0.224

0.342/ 0.372/ 0.402/ 0.432

0.667/ 0.687/ 0.707/ 0.727

1.333/ 1.363/ 1.393/ 1.423%


0.130/ 0.110/ 0.090/ 0.080

0.283/ 0.253/ 0.232/ 0.212

0.628/ 0.608/ 0.588/ 0.568

1.304/ 1.274/ 1.244/ 1.214%



 The 8–week loss from Initial Jobless Claims rose to 36.48 million on this week’s 2.981 million increase. Though that marked the 6th week of declines in the numbers, the result was overstated as Connecticut ‘fat fingered’ their report with a 298,680 loss instead of the intended 29,846. We’ll see the revision next week! Continuing Claims increased from 22.377 million to 22.833 million. Only 2 million of the more than 20 million workers that lost jobs in April indicated that the loss was permanent. Bloomberg Consumer Comfort fell for an 8th week, though by only 1.1 points to 35.8. That level was the lowest since September 2014. NFIB Small Business Optimism fell from 96.4 to 90.9.

Consumer Prices dropped .80% (the most since 2008) in April decelerating the annual pace from 1.50% to .30%. Ex food & energy CPI fell .40% for the largest decline on records that started in 1961. The annual core pace slowed from 2.10% to 1.40%. Average Hourly Earnings rose 7.50% versus April 2019 and Average Weekly Earnings were 6.90% higher (also year–over–year). Producer Prices fell 1.30% – sending annual PPI from .70% to –1.20% and into deflation mode. Core PPI fell .30%, slowing the annual pace from 1.40% to .60%. Import Prices fell 2.60% and were .50% lower ex Petroleum. Export Prices dropped by 3.30%. Empire Manufacturing was better at –48.5 versus –78.2.

Other Friday data for next week’s BMR includes Industrial Production & Capacity Utilization, JOLTs job openings, Business Inventories, net foreign Treasury operations (flows), and the University of Michigan sentiment surveys. Monday (05/18) brings homebuilder outlook (NAHB Housing Market Index). Tuesday follows with Housing Starts and Building Permits for April. Wednesday gives us MBA Mortgage Applications (which rose .30% last week) and the minutes from the FOMC meeting that concluded on April 29th. Thursday yields jobless claims data, the Philadelphia Fed Business Outlook, April’s Leading Index and Existing Home Sales.


 Stocks have followed their cyclic forecast very well. While no analysis is perfect, equities have been trading pretty much as expected. Last week, we said: “The cycles show a low near May 13th followed by another rally into a high near May 20th.” We warned: “The downward energy from May 20th into June 18th is fairly significant!” The Dow Industrials tumbled over 1,540 points into today’s low before closing 377 points higher today. The last down day was into the cycle due near the 13th (on Wednesday) so we would consider a move up into the 20th as a chance to set defensive posturing. You could always miss some upside, but this stronger cycle and the overvalued status of stocks should merit extra caution. As of today, the core indexes we follow were all back to or still negative for the year.

Last week, the Dow gained 607.63 points or 2.56% to close at 24,331.32. It’s 2.90% lower this week (even after Thursday’s 377–point rally). The S&P gained 3.50% but then lost 2.64% through Thursday. The Nasdaq surged 6.00% but has fallen 1.95% this week. The Dow Transports rose 2.30% but have tumbled 5.65% this week. Bank stocks managed a .24% gain last week but lost a lot of ground with an 8.35% plunge into today.




Resistance: 23,712/ 24,020/ 24,332/ 24,644

8,979/ 9,074/ 9,170/ 9,266

2,873/ 2,900/ 2,927/ 2,954


23,405/ 23,101/ 22,797/ 22,497

8,886/ 8,792/ 8,698/ 8,605

2,820/ 2,794/ 2,768/ 2,742

Other Markets

The updated Crude Oil cycle shows a high due near May 18th followed by a drop into June 1st. Crude Oil surged 25.08% last week and was 11.40% higher into today. Commodities gained 6.05% but were 1.29% lower through Thursday. Gold rose .76% and added 1.58% this week. The U.S. Dollar gained .68% and then added .74% into today. The Japanese Yen rose .24% but then fell .56% this week. The Euro lost 1.39% last week and was .31% lower coming into today. Corn rose 2.41% and added .39% this week. Cotton lost .51% but rallied 2.81% into today.

“Against logic there is no armor like ignorance.” Laurence J. Peter


Doug Ingram, Financial Economist


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