Yields climb. U.S. stocks are slightly lower, and the 10-year Treasury yield is slightly higher this morning on a second day of light news. The 10-year yield has bounced about 20 basis points (.20%) over the past five trading sessions, spurred by optimistic trade and geopolitical headlines. We still think the 10-year yield’s fair value is much higher than current levels, but we wouldn’t be surprised to see yields take a breather here, especially a few days before a pivotal European Central Bank decision. Fortunately, the 10-year yield’s ascent has helped normalize the shape of the U.S. yield curve, which was inverted at several points in August.
Small business optimism declines, but remains elevated. The National Federation for Independent Businesses’ Small Business Optimism Index for August missed consensus expectations, declining to a five-month low. However, the gauge of corporate sentiment has held onto most of its gains since the 2016 elections. Hiring accelerated, but respondents indicating a lack of qualified workers grew to 57%, a record since the question’s inception in 1993. Labor markets are continuing to tighten, but small business continues to effectively navigate the environment.
Consumer credit surges. U.S. consumer borrowing surged $23.3 billion month over month in July, the biggest jump in consumer credit since November 2017. Revolving balances (credit card debt) were primarily responsible for the increase, likely from Amazon’s Prime Day sale. Consumer credit has grown at a steady year-over-year pace recently, a sign to us that consumer spending is healthy, but not excessive.
Breakeven rates decline. The decline in yields has weighed on breakeven rates, or a gauge of investors’ inflation expectations measured by the spread between nominal Treasury yields and Treasury Inflation-Protected Securities (TIPS) yields. Even though deflationary fears are spreading, we’ve seen signs that inflationary pressures are picking up in the U.S. On today’s LPL Research blog, we’ll highlight the decline in breakeven rates and analyze why TIPS and nominal yields are so low in the face of solid data.
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