Treasury yields are drifting higher following the release of the first estimate of Q1 GDP. While headline growth was weaker than expected at 1.1% q/q (annualized), it was largely attributable to a decline in business inventories, which shed 2.3 percentage points from the topline figure. Personal consumption rose 3.7% q/q, slightly below expectations, but real final sales to domestic purchasers surged 3.2% after rising just 0.7% in the prior quarter. The latter category is considered a “core” GDP measure because it excludes noise from inventories and trade. The inflation gauges within the GDP measure came in higher than expected in Q1, with core PCE up 4.9% q/q (4.7% expected). and as a result, market pricing for a 25 basis point rate hike next week is up to a 90% probability this morning.
House Republicans were able to pass a debt ceiling bill by a 2-vote margin that would include spending cuts across several categories. The bill is not expected to pass the Senate, and President Biden has, to this point, suggested that he will not entertain discussions linking a debt ceiling increase with budgetary matters. On a related note, Goldman Sachs analysts are now projecting that the x-date for increasing the debt ceiling could be pushed to the end of July thanks to an unexpected, late season surge in federal tax receipts. Initial tax season data had been underwhelming, causing many analysts to move their projections for when the Treasury will run out of cash (x-date) to early/mid-June.
Jason Haley
Chief Investment Officer
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