The Week in Review/Week AheadThe Week in Review
Analyst: Jonathan Garber
The Week Ahead
- Treasuries endured heavy selling this week.
- Friday's nonfarm payroll report (175K actual v. 163K expected) was the standout among this week's data with construction spending (0.1% actual v. -0.1% expected), personal spending (0.4% actual v. 0.1% expected) and the ISM Index (53.2 actual v. 51.6 expected) also topping estimates.
- The jobs report was not all roses as nonfarm private payrolls (162K actual v. 170K expected) missed and the unemployment rate ticked up to 6.7% (6.6% previous).
- Factory orders (-0.7% actual v. -0.5% expected), ISM Services (51.6 actual v. 53.5 expected), productivity-rev. (1.8% actual v. 2.5% expected), and the trade balance (-$39.1B actual v. -$37.3B expected) all missed estimates
- The Fed's Beige Book suggested the economy saw modest to moderate expansion across most districts. Winter weather was the scapegoat in those regions that contracted.
- Traders remain uneasy going into the weekend in regards to the developments in Ukraine. Russian President Vladimir Putin has suggested he is not looking to annex Crimea. However, a referendum on the topic is likely to take place sometime next week. Ukrainian Prime Minister Arseniy Yatsenyuk has stated Crimea is, and will always be, part of Ukraine.
- This week's selling was pretty well dispersed along the curve with yields 5y on up tacking on between 16-18bps.
- Yields tested multi-month lows on Monday, but selling over the course of the week had them at one and a half month highs at Friday's cash close.
- The 5y rallied +17bps, ending the week @ 1.640%. The yield broke out of its 1.450%/1.550% range that had been in place since the beginning of February, and is nearing a test of the key 1.750%/1.800% area.
- The 10y jumped +18bps over the course of the week, closing @ 2.790%. Monday's session produced the first close below the 200 dma since early May, when the Fed first discussed the possibility of tapering. Resistance in the 2.850% area will be watched into next week.
- Selling at the long end caused a +16bp jump in the 30y. The 3.750% level is now in focus as both the 50 and 100 dma aid resistance in the area.
- Significant steepening took hold along the curve with the 2-10-yr spread widening to 242.5bps.
- There is no data on Monday. Philly's Plosser travels to Paris, France to take part in a "Central Bankers" discussion (5:45). Chicago's Evans will discuss economic conditions and monetary policy (12:40).
- Tuesday's data is limited to wholesale inventories (10). Treasury will auction $30 bln 3y notes.
- Wednesday's data includes the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will reopen $21 bln 10y notes.
- Data picks up on Thursday with initial and continuing claims, retail sales, import/export prices (8:30), and business inventories (10). Treasury will hold a $13 bln 30y bond reopening.
- Data for the week concludes on Friday with PPI (8:30) and Michigan Sentiment (9:55). Fed Vice Chair Stanley Fischer gives opening remarks to a dinner event at Stanford University (19:45). The International Research Forum on Monetary Policy's two-day conference begins.