Tuesday, June 7, 2011

10 Yr Treasury Shows Nominal GDP is Under 3%

Dr Ed Yardeni comments on the dynamics of bond market pricing in his post titled "The Bond Yield". He makes the point that bond yields and the expected nominal GDP rate have a lot in common. Yields tend to revert to the expected nominal GDP rate.

GDP is a measure of the output of goods and services produced by labor and property located in the United States. It is also an indicator of broad US based economic activity that is expected to be reflected in the stock market.

The article focuses on 'expected' rather than 'stated' GDP rate. According to John Williams at Shadow Government Stats, "GDP reporting remains the least meaningful and most heavily gimmicked/politicized of the major economic series, at least in the first year or so of reporting."

Expectations for GDP are useful to provide hints about the near term trend of consumer confidence and stock market sentiment. It is fuel for the bulls and the bears, depending on their bond yield expectation.