First, the better “new orders” data and rising industrial commodity prices are consistent with higher bond yields. “The oil price is up around 55 per cent from its low but US 10-year bond yields are down around 20 basis points since the low in the oil price”. A rise in the oil price of this magnitude has never historically been associated with a fall in bond yields, says CS.
Second: “There are some signs of stronger US inflation (with a slight uptick in core PCE inflation, and the Atlanta Fed wage tracker).
Third, CS calculates that bond yields are 1.4 standard deviation below the bank’s estimate of fair value.
Finally, as the European Central Bank and Bank of Japan remain in easing mode, CS notes that “often yields rise in the 3-6 weeks following a commencement or acceleration of QE”.
30-2 Year Yield Spread
Daily Chart of Oil
Daily Chart of Industrial Metals ETF
Now that we’ve fulfilled our duty of relaying the seasonally adjusted annualized rate headline numbers, we can get to the task of discussing the data in our preferred manner. Not seasonally adjusted (or annualized) sales rose to 48,000 units in March, matching April 2015 as the strongest month for new home sales since May 2008. We had forecast unadjusted sales of 46,000 units in March but were off to a larger degree on our forecast for headline sales (488,000) since the decline in the seasonal adjustment factor was smaller than we had anticipated. Be that as it may, the 12-month moving sum of not seasonally adjusted sales, which we consider to be the most relevant gauge of underlying trends in sales, stands at 503,000 units as of March. This can be seen in one of two ways – it is the highest 12-month total for new home sales since November 2008, but at the same time the 12-month total has been pretty much stuck over the past four months, never below 501,000 or above 503,000, implying the underlying trend rate of sales is flattening out.