Have the bond vigilantes
come out of hibernation?
by Ron Griess
Proprietor, The
Chart Store
www.thechartstore.com
April 5, 2004
Interest rates turned up in dramatic fashion on Friday, April 2. This was coincident with the release of the monthly employment statistics by the Bureau of Labor Statistics (BLS). The following charts suggest it is just not JOBS that caused the reaction.
Data as
of April 2, 2004
Chart 1 Note: The divergence between overall commodity prices and yields is quite striking.
Data as
of April 2, 2004
Chart 2 Note: Again we see a large divergence between the price of copper and yields. The price of copper has a strong correlation with economic activity.
Data as
of April 2, 2004
Chart 3 Note: The Institute of Supply Management releases its various purchasing managers indexes once a month. This chart is updated through the March release and shows a similar divergence with the previous two.
Summary Points:
Inflation statistics reported by the BLS, especially the PPI series related to crude materials, are suggesting some inflationary pressures are building in the economy.
This is confirmed by the three charts above. The Federal Reserve seems to be allowing the markets to set the stage for rate hikes. Have the bond vigilantes awakened and sprung into action?
© 2004 Ron Griess
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