When Q1 GDP first came out weaker than expected and was subsequently revised all the way to -2.9%, it put a damper on many assessments of US economic health. While it may or may not be a mistake to have a downbeat view of the economy, it was probably a mistake to let the weird Q1 GDP do so much of the convincing. The strong bounce back in Q2 demonstrated that, but it was only the first of three readings. The econo-bears remained convinced that more negative revisions are on the way.
The nice thing about that is that we’ll get to find out one way or another tomorrow. Between now and then, however, not much is happening. The headline suggests this affords some opportunity to consider the upcoming data. Although I’m not sure there is enough market participation this week for such consideration to be meaningful, I’m more sure that any conversation about where rates might be headed would have to include the trend that’s been intact since early July.
Long story short, Treasury yields have been hovering right in the middle of this trend for the past few days and are looking due for a breakout any time now. Why not following GDP? (Well, there at least two reasons why GDP may not be the biggest market mover in the room, and Europe is both of them, but let’s pretend like it might matter). If we do happen to see some more pronounced movement on Thursday, the downside for yields is pretty exciting (implied move to the high 2.2’s) and the upside doesn’t seem too bad (implied move to mid 2.4’s). Win/win?