Mixed economic data and the Fed meeting led to an increase in bond yields last week, as the 10 year Treasury broke out of its near-term range. The 10 year Treasury yield increased by approximately 20 basis points (bps) last week while the equity market was roughly unchanged. U.S. first quarter Gross Domestic Product (GDP) rose 0.2% in the first quarter, which was weaker than consensus estimates of 1.1%, confirming that the slowdown in the economy was significant. GDP is a lagging indicator and because the slowdown was expected, it was widely discounted by the markets.
The Fed ended its two day policy meeting with an uneventful statement. It does appear the Fed will look for the strength in the recovery of the economy to determine the timing of the Fed increase. Reading between the lines in the statement, it does appear the Fed will increase rates in 2015.
In the week ahead, the key economic data will be Friday's April employment number. We expect housing to show a rebound from the weak data in March. Also in the week ahead, we expect global bond yields to continue to rise and the 10 year Treasury yield should test the year-to-date high of 2.24%. Any sustained move above this level could signal a more significant increase in yields.
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