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Short Rates Rise Despite GDP Miss

Short-term yields resumed their upward march this week following Congress' (temporary) resolution of the government shutdown.  The yield curve flattened as the 2-year note picked up 5 bps of yield, while the ten-year was unchanged.  The week's economic calendar was mixed, with Friday's GDP report garnering the most attention.  In the Commerce Department's first measurement of fourth quarter GDP, the economy grew at a slower than forecast 2.6% annualized rate.  The lower than expected number was driven by the widening trade deficit, as imports rose at double the pace of exports. 

The consumer sector showed continued strength, as personal consumption rose 3.8% during the quarter.  As household purchases account for approximately 70% of the US economy, this augurs well for near-term economic growth.  The weakness in the two home sales indicators released during the week was attributed to a lack of supply rather than any weakness in housing demand.

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