Disappointing economic data and concern over the impact of the French presidential election weighed on the market, leading investors to buy bonds and push rates modestly lower. Treasury yields fell from two years and out, with the 10-year portion being the biggest beneficiary, flattening the yield curve.
The month began with a big “miss” for payroll growth relative to market expectations and ended with a weak GDP number (+0.7%), influenced by lackluster consumer spending. On the positive side, wages are seeing steady growth, home sales improved nicely, and first quarter corporate earnings have witnessed sharp increases.
Some domestic inflation data moderated a bit in April, and TIPS breakeven rates retreated. Nevertheless, it is worth noting that the year-over-year Core PCE is tracking at 1.8%, and CPI is at 2.4%. Eurozone core inflation ticked up modestly to 1.2%.
The President introduced his tax policy proposal. While the broad outline points to some major changes, which could invigorate corporate after-tax cash flows and push federal budget deficits higher, the bond market has taken a “wait-and-see” approach with a muted reaction so far.