Falling U.S. Treasury yields suggest bond investors lack the optimism shown by economists about the outlook for growth, according to Edward Yardeni, president and chief investment strategist at Yardeni Research.
The CHART OF THE DAY tracks a comparison that Yardeni cited today in a report: the gap between yields on 10-year Treasury notes and year-to-year percentage changes in nominal gross domestic product, which isn’t adjusted for inflation.
Nominal GDP growth slowed during the past two quarters, mirroring a similar slump in inflation-adjusted, or real, GDP. The first-quarter figure dropped to 3.9 percent from 4.2 percent in last year’s fourth quarter.
“The economy could be in a soft patch for the next few months,” that would bring the second quarter’s growth rate into line with yesterday’s 3.2 percent yield on the 10-year Treasury, Yardeni wrote. Parts shortages related to Japan’s earthquake, gasoline-price increases and spending cuts by state and local government may limit economic expansion, he said.
Economists expect a rebound in the second quarter rather than further weakness, according to the results of a Bloomberg survey. The average real GDP estimate of 73 economists amounts to a 2.7 percent increase from a year earlier. The first-quarter figure was 2.2 percent.
“The behavior of the bond market certainly suggests that fixed-income investors are less concerned about inflation and expect slower growth in real economic activity,” Yardeni wrote.