Personal Income and Outlays
There wasn’t much in this morning’s economic data for bond traders to be pleased with. April's Personal Income and Outlays data showed a 0.4% rise in income and 0.8% jump in spending. The income reading matched forecasts, but the spike in outlays greatly exceeded expectations of a 0.4% increase. Furthermore, the PCE index within this report, that the Fed relies heavily on, came in higher than predicted. Since the PCE index is considered to be an inflation reading, we have to label the data clearly bad news for bonds and mortgage rates. Strong inflation makes long-term securities, such as mortgage bonds, less appealing to investors since it erodes the value of the security’s future fixed interest payments. It also causes the Fed to be more aggressive with their key short-term interest rate hikes.