Another Treasury yield scenario to think about/US PMI staying above 50

As an add on to what I wrote this morning, the other scenario to think about with regards to long end bonds is the desire of many to buy them now in anticipation of a recession. Its seemingly always worked as the Fed cuts rates and the long end benefits from an economic contraction and muted inflation. What will happen this time though? I ask this because if a major concern of ours is too much Treasury supply, deservingly so, then in a recession, the Treasury supply will really ramp up as tax receipts falter, spending increases and the budget deficit and debts really blow out to the upside. This scenario will most likely happen so the question then is if in this upcoming recession will there be the offsetting jump in private sector savings (as everyone retrenches and saves more) that can absorb this eventual further skyrocketing Treasury supply.

The October S&P Global manufacturing and services composite PMI rose to 51 from 50.2 in the two prior months and vs 52 in July. Services rose a touch to 50.9 from 50.1 while manufacturing was up a smidge but back to 50 exactly from 49.8.

With services, new orders “saw a slower drop” and reasons given why it remains below 50, “many continued to note that high interest rates and challenging economic conditions weighed on client demand. Some mentioned smaller and less frequent orders being placed by customers.” Employment was up though. Service companies are having a harder time passing on their own cost pressures, which did soften, “service providers saw a notable slowdown in charge inflation amid competitive pressures and customer requests for concessions.”

The manufacturing sector saw “the fastest rise in new orders in just over a year. Some factories attributed this to the diversification of products and sales strategies.” That said, “foreign client demand remained subdued in October…Dollar strength leading to reduced competitiveness, alongside difficult economic conditions in key export markets, led to a dearth of new export orders, according to panelists.” Employment saw “the first decline in manufacturing jobs seen since July 2020.” Inventories continue to get drawn down as “firms continued to highlight the rundown of safety stocks, with pre-production inventories falling at a faster pace.” On pricing, “Manufacturers continued to increase output prices at a modest pace” but, “goods producers recorded the sharpest uptick in input prices since April. Hikes in oil and oil derived material prices pushed up cost burdens in the manufacturing sector.”