Market commentary

Negative economic data has bonds in rally mode this morning pushing the yield on the 10 year note down to 2.85%. Mortgage prices are improving as well; however, we would be seeing more of a follow-through in mortgages if the potential downgrade of U.S. debt had not widened credit spreads.

This morning it was reported that 2nd quarter GDP came in short of expectations at 1.3%. This was not completely unexpected, but what came in as a surprise was the revision of the 1st quarter GPD to just 0.4% from 1.9%. That kind of revision is much unexpected. The 1st quarter was revised down to reflect a worse trade deficit, due to higher oil imports, and inventories, which add to GDP, were revised down. The drop in auto production, due to the Japanese disruption, caused a huge dip as well. Personal Consumption rose just 0.1%, well below the 0.8% anticipated, as the consumer reined in spending amid a tirade of economic negatives. In addition, higher cost figures pushed the Employment Cost Index up to 0.7% from 0.6%, while expectations were for 0.5%. All in all, this was a pretty negative report.

Following the weak GDP announcement, the Institute for Supply Management-Chicago Inc. said today its business barometer fell to 58.8 in July from 61.1 the prior month with the employment measure declining to 51.5 from 58.7, indicating less hiring.

And finally, the Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7 from 71.5 in June, the weakest since March 2009, from 71.5 in June.

In summary, lots a negative economic data this morning has investors seeking the safety and liquity of the U.S. Treasury market in spite of the seeming impasse regarding any deficit reduction and increase in the debt ceiling.