Leader Week in Review - July 2nd, 2015
Economic Data Releases:
The back-end of the yield curve rose in a week shortened by Independence Day. Credit spreads tightened, easing some of the recent pain seen in the credit market (chart 1). Investment Grade Credit spreads are now at levels last seen in 2013. High Yield performance has been much better, with spreads having tightened year-to-date. The underperformance of Investment Grade Credit can be attributed to interest rates moving higher – Investment Grade has a duration of 7.1 years while High Yield has a duration of 4.4 years.
With the Unemployment Rate at 5.3%, we are very close to the Fed’s estimated range for long-term unemployment of 5.0% to 5.2%. Below this range, wage growth and inflation accelerates. Depending on which wage measure you favor, you can argue that this has already begun to occur/is not occurring (chart 2). Regardless, wage growth did bottom in 2012 and with an improving labor market, the medium-term trend is higher, allowing the Fed to raise rates in September.
Upcoming Economic Data Releases: