April was characterized by very good economic news, major fiscal policy proposals, and a somewhat surprising mini-bond market rally. The benchmark 10-year U.S. Treasury yield ended the month 12 basis points (bps) lower, and the 2- to 30-year curve slope ended the month 10 bps flatter.
Throughout the month, most economic releases pointed to strong growth in the U.S. This started with an exceptional non-farm payrolls number early in the month and the unemployment rate dipping to 6%, followed by strong retail sales and jobless claims falling to a pandemic low. Working against the positive data was a hiccup in the J&J vaccine rollout and a rise in Covid cases overseas, particularly in India and Brazil.
On the policy front, the Federal Reserve Board reiterated their view that they will not move rates until inflation is sustained above 2% for a considerable time. President Biden outlined his latest dramatic spending proposal, this on on “human infrastructure,” along with tax increases on corporate profits and wealthy individuals.
Although most of the news was bond-bearish, yields from five years on out the curve fell. Analysts attributed the market move to various factors including short-covering, heavy buying Japanese investors, and the market’s percaption that the Fed will not move faster than expected. As is often the case, the market may have simply overshot, having previously discounted much of the growth story.