Tom Moeller

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<p><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/021209a.jpg" width="353"></p>
<p>Corporate bond yields have remained near their cycle lows as yields on US Treasuries have moved higher. The spread between corporates and Treasuries returned to the range of the last three years.</p>
<p>The Merrill Lynch Corporate Master Index of average corporate bond yields of varying type and quality remained below 5.5% as of the end of last week. Yields on 10 Year Treasuries moved to 4.09% versus the low of 3.61% set in early October.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W1/@WB21/@WB21.HTM">Merrill Lynch Bond Yields</a></th>
<th scope="col"><u><b>Nov</b></u></th>
<th scope="col"><u><b>Oct</b></u></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><b><u>2001</u></b></th>
<th scope="col"><u><b>2000</b></u></th>
<th scope="col"><b><u>1999</u></b></th>
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<td class="firstcol">Corporate Total</td>
<td>5.62%</td>
<td>5.94%</td>
<td>6.04%</td>
<td>6.50%</td>
<td>7.82%</td>
<td>6.96%</td>
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Corporate bond yields have remained near their cycle lows as yields on US Treasuries have moved higher. The spread between corporates and Treasuries returned to the range of the last three years. The Merrill Lynch Corporate Master [...]

Credit Spreads Tighten

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Andrew Cates

**Global growth**
Latest flash PMI readings reveal a widening gap in manufacturing performance across major economies. Europe remains mired in contraction, with both the UK and euro area registering PMI figures below the 50 threshold. The UK’s manufacturing sector is particularly under pressure, with the PMI dropping to a new low not seen in over a year—reflecting weak output and mounting challenges from both domestic uncertainty and external shocks, including the disruptive impact of recent US trade actions. While the euro area shows tentative signs of stabilization, with PMI readings inching higher, the recovery remains fragile. In sharp contrast, India’s manufacturing sector continues to outperform, with PMI figures climbing further and signalling resilient industrial momentum amidst global headwinds.

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**US capex intentions**
The latest reading from the US Philly Fed survey suggests a sharp drop in capex intentions among manufacturers in the Philadelphia region, likely reflecting growing uncertainty in the wake of the US administration’s surprise announcement of sweeping tariffs on April 2nd, 2025. This abrupt policy shift has rattled business confidence, echoing past episodes—such as during the 2008 financial crisis and early stages of the pandemic—when capex sentiment similarly plunged. The downturn underscores how policy-induced trade disruptions can swiftly chill investment appetite, particularly in manufacturing sectors exposed to global supply chains.

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**South Korean trade**
The fallout from President Trump’s “reciprocal” tariffs and the rapid escalation of the trade dispute with China is also now becoming evident in Asia’s trade data. South Korea’s trade figures for the first 20 days of April—often seen as a bellwether for global trade—fell sharply compared to the same period last year. The drop was led by a steep decline in exports to the United States, where tariffs on Chinese goods have surged to as high as 145%, effectively choking bilateral trade flows outside a narrow band of exemptions for strategic goods like electronics and semiconductors. Even these sectors are feeling the strain: South Korea’s semiconductor exports continued to decelerate in April, highlighting the broader collateral damage of deepening trade tensions.

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**Gold prices**
The latest escalation in US-China trade tensions is reverberating far beyond traditional trade channels. Market sentiment has deteriorated noticeably, weighed down by darkening global growth prospects and deepening uncertainty over the future of relations between the world’s two largest economies. The forced decoupling is also reshaping investor behaviour, particularly among Chinese investors, who are increasingly turning to stateless safe-haven assets like gold. This shift is evident in the surge in trading volumes on the Shanghai Gold Exchange and the steady climb in global gold prices—buoyed further by a weakening US dollar. The trend points to rising concern among Chinese investors about the geographic concentration of their wealth, as Washington’s increasingly hawkish posture prompts a reassessment of cross-border financial exposure.

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**The US dollar and market volatility** 
Recent sweeping US-led trade actions and a broader turn toward protectionism have sharply eroded the goodwill and soft power long associated with the US and its financial assets. As Washington becomes an increasingly prominent source of global instability, investor confidence in the US dollar as a safe-haven currency has weakened. This loss of faith is reflected across asset markets, with the dollar’s persistent and more entrenched decline against major currencies standing out as a clear signal of a broader reassessment of the US’s global economic role. Elevated market uncertainty reinforces this shift, as underscored by still-high—albeit slightly moderated—readings on the VIX volatility index.

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**Asia’s consumption**
Viewed in a broader context, the recent actions by the US may signal an effort to rebalance its economy—though whether this strategy is well-calibrated remains highly contested. As the issuer of the world’s dominant reserve currency, the US has long been ensnared in the so-called Triffin dilemma: global demand for dollar-denominated assets has sustained persistent trade deficits, gradually undermining the competitiveness of its domestic manufacturing and other tradable sectors. China, by contrast, grapples with the mirror image of this problem. Its growth model remains heavily anchored in manufacturing and external surpluses, and it is now under mounting pressure to pivot toward consumption-led growth—an imperative sharpened by the latest wave of US measures designed to curb Chinese export strength.

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Financial market volatility has remained elevated over the past several days as investors attempted to weigh a modest improvement in sentiment—driven by a potential, if partial, retreat by the US administration from its aggressive tariff stance—against a still-cloudy global outlook. Signals from flash PMI surveys on global growth remain mixed: Europe continues to stagnate, with the UK particularly weak, while India stands out with resilient and rising manufacturing activity (chart 1). In the US, most of the incoming data suggest that business confidence has faltered, with capital expenditure intentions plunging particularly sharply in the wake of the April 2nd tariff announcement (chart 2). The drag from trade tensions is, moreover, becoming more evident: South Korea’s exports have slumped, especially to the US, and even sectors granted exemptions—like semiconductors—are showing signs of strain (chart 3). These pressures are reverberating through financial markets as well, where Chinese investors are shifting into gold as a hedge, fuelling record trading volumes on the Shanghai Gold Exchange and lifting global gold prices (chart 4). Meanwhile, a broadly-based decline in the US dollar and persistently high readings on the VIX index arguably reflect a deeper reassessment of US assets as reliable safe havens amid mounting policy unpredictability (chart 5). Beneath these short-term ripples lie more entrenched structural challenges: the US is seeking to rebalance away from external deficits linked to its reserve currency role, while China is under growing pressure to pivot toward consumption-led growth—an imperative sharpened by American efforts to choke off its export strength (chart 6). In short, the latest softening in US trade rhetoric may offer brief relief, but the underlying economic, geopolitical, and structural crosswinds remain very much in play.

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Charts of the Week: Dollar Dips and Trade Trips

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The Federal Reserve Bank of Kansas City reported that its index of manufacturing sector activity declined to -4 during April from -2 in March, indicating a continued decline in factory sector activity. The index has been at zero or below since October 2022. This survey was taken between April 16-21.

Haver Analytics calculates an index based on the Kansas City results which is comparable to the ISM series. This index eased to 50.0 (NSA) from 51.4 in March. It compared to a low of 43.7 last July.

The new orders index of -11 this month compared to -12 in March. Thirty percent (NSA) of respondents reported higher orders while 37% reported a decline. Shipments improved to -2 from -4 and remained above -12 in December. Thirty-three percent (NSA) of respondents reported higher shipments while 28% reported a decline. Employment fell to -11 this month from -4 In March. It has been negative for three straight months. Thirteen percent (NSA) of respondents reported more hiring while 25% reported less. The average workweek index fell to -6 from +6 in March. Supplier delivery times surged to 13 from -1 as a higher 18% (NSA) of respondents reported a quickening of delivery speeds and a lessened 2% indicated a slowdown. Finished goods inventories rose to +5 from -8 in March, indicating the greatest rate of inventory accumulation in four months. Materials inventories weakened to -5 in April from +4 in March.

Inflation indicators strengthened in April. The prices paid index for finished products jumped to 29 from 15 in March. It was the highest reading in almost three years, up from a low of -3 in July 2023. Thirty-four percent (NSA) of respondents reported higher prices while none paid less. The raw materials index held at 42, up from a low of -1 in October 2023.

The composite index of expectations six months ahead fell to 6 in April from 10 in March. It was below a high of 17 in December. Expectations for future shipments fell to 9 this month, down from 31 in December. Orders expectations also weakened significantly, with the index falling to a minimal 3 from 20 in March. The employment reading of 1 compared to zero in March and 19 in December. Expectations continue to be for higher prices. The expectations index for finished goods prices jumped to 59, a roughly three-year high, from 39 in March. Raw material prices jumped to 71 in April, also a three-year high, from 57 in March.

The latest survey was conducted between April 16-21, 2024 and included 97 responses from factories in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

The Fed’s latest **Beige Book** covering regional economic conditions is available [here](https://www.federalreserve.gov/monetarypolicy/files/BeigeBook_20250423.pdf).

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- Index has moved sideways for over two years.
- Most components remain negative.
- Prices paid reading surges.

Kansas City Fed Manufacturing Activity Index Declines in April; Expectations Diminish

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Existing home sales declined 5.9% (-2.4% y/y) during March to 4.02 million units after rising 4.4% to 4.270 million units in February, revised from 4.26 million, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 4.15 million unit sales. The March sales decline accompanied an easing in the effective 30-year mortgage interest rate to an average 6.65% in March from 6.84% in February. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales in March declined 6.4% (-2.2% y/y) to 3.64 million units after a 5.7% increase to 3.89 million in February. Sales of condos and co-ops held steady (-5.0% y/y) at 380,000, following a 7.3% February decline.

Sales declined in all regions in March. Sales in the West fell 9.4% (+1.3% y/y) to 770,000 after a 13.3% strengthening in February. Sales in the South declined 5.7% (-4.2% y/y) to 1.81 million after a 4.9% February increase. Sales in the Northeast were off 2.0%, unchanged y/y to 490,000, down for the third straight month. Sales in the Midwest declined 5.0% (-3.1% y/y) to 950,000 units after holding steady in February.

The median price averaged by all existing homes (NSA) rose 1.7% (2.7% y/y) to $403,700 in March after a 0.9% February increase. Prices remained below a high of $426,900 in June 2024. The median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 in March and the median price of condos and co-ops increased 2.3% (1.5% y/y) to $363,000 last month. Prices for all homes rose 2.3% (+3.5 y/y) in the Midwest to $302,100. In the South, prices rose 1.2% (0.6% y/y) to $360,400. Prices in the Northeast prices increased 0.8% (7.7% y/y) to $468,000 while in the West prices rose 1.1% (2.6% y/y) to $621,200.

The number of existing homes for sale (NSA) rose 8.1% (19.8% y/y) to 1.33 million units in March following a 4.2% February increase. The supply of homes on the market at the current selling rate (NSA) increased to 4.0 months. A high of 4.2 months occurred in September 2024. The record low in supply of 1.6 months occurred in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales are lowest since September.
- Decline extends throughout the country.
- Median sales price increases.

U.S. Existing Home Sales Fall Sharply in March

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New orders for durable manufactured goods jumped 9.2% (11.9% y/y) during March after increasing 0.9% in February, revised from 1.0%. A 2.0% increase had been expected in the Action Economics Forecast Survey. A 27.0% rise (31.2% y/y) in transportation sector orders accounted for the rise, following a 1.2% gain. Excluding the transportation sector, new orders for durable goods held steady (+2.2% y/y), after a 0.7% rise during February.

The March rise in transportation orders was driven by a more-than-doubling of aircraft & parts orders and a 2.3% increase (0.6% y/y) in motor vehicles & parts, coming on the heels of a 5.1% February gain. Primary metals orders rose 0.7% (4.6% y/y) after rising 1.3% while fabricated metals orders increased 0.2% (2.7% y/y) after a 1.2% rise. Machinery orders edged 0.1% higher (1.1% y/y) after increasing 0.8% in February. Elsewhere, orders declined. Computer & electronic product orders fell 1.2% (+2.7% y/y) following a 0.1% easing while electrical equipment, appliance & component orders declined 0.5% (5.2% y/y) after rising 0.6% in February.

Nondefense capital goods orders surged 29.4% (32.3% y/y), while nondefense capital goods orders excluding aircraft improved 0.1% (1.8% y/y) in March after falling 0.3% in February. Defense capital goods orders fell 9.4% (+3.5% y/y), the sixth straight month of sharp decline.

Factory shipments of durable goods edged 0.1% higher (3.7% y/y) in March following a 1.3% February rise. Transportation sector shipments fell 0.5% (+7.3% y/y) after a 2.4% gain. Shipments excluding the transportation sector improved 0.4% (2.1% y/y) following a 0.8% rise. Machinery shipments gained 0.5% (0.3% y/y) following a 0.9% rise while computer & electronic product shipments eased 0.2% (+4.0% y/y) after rising 1.6%. Shipments of electronics & appliances rose 0.5% (3.7% y/y) after a 0.3% decline. Shipments of all manufactured products eased 0.1% (+2.1% y/y) in March after improving 0.7% in February. Shipments of nondefense capital goods less aircraft rose 0.3% (0.8% y/y) after rising 0.7% in February.

Unfilled orders of durable goods rose 2.0% (2.3% y/y) during March after a 0.1% February gain. Excluding transportation, backlogs eased 0.1% (+0.7% y/y) after no change in February. Inventories of durable goods edged 0.1% higher (1.0% y/y) following no change during both of the prior two months. Less transportation, durable goods inventories rose 0.2% (0.3% y/y) after holding steady in February. Inventories of all manufactured products rose 0.1% (1.0% y/y) during March for the third month in a row.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Increase exceeds expectations after moderate February rise.
- Transportation orders account for all of last month’s gain.
- Nondefense capital goods less aircraft orders are minimally higher.

Credit Spreads Tighten

Summary

Tom Moeller

More Economy in Brief

Charts of the Week: Dollar Dips and Trade Trips

Kansas City Fed Manufacturing Activity Index Declines in April; Expectations Diminish

U.S. Existing Home Sales Fall Sharply in March

U.S. Advance Durable Goods Orders Surge During March