Updated: 09-01-2014

The Week in Review/Week Ahead
Updated: 29-Aug-14  03:26PM ET
Analyst: Jonathan Garber

The Week in Review
  • Treasuries gained this week, supported by global growth concerns and uneasiness over the developments in Eastern Europe
  • Disappointing data out of Germany sparked concerns the growth engine of Europe is beginning to falter. Yields across Europe pressed to record lows on speculation the European Central Bank will launch a QE-type program at next week's meeting. Notabale were comments from Bundesbank head Wolfgang Schaeuble pushing back against QE as he suggested the central bank is near the limit as to what is can do.
  • Ukraine President Petro Poroshenko accused Russia of putting boots on the ground in his country
  • Economic data in the U.S. was mixed. New home sales (412K actual v. 427K expected), durable orders -ex transportation (-0.8% actual v. 0.6% expected), Cash-Shiller 20-city Index (8.1% actual v. 8.3% expected), personal income (0.2% actual v. 0.3% expected), and personal spending (-0.1% actual v. 0.1% expected) all fell short of estimates while consumer confidence (92.4 actual v. 88.3 expected), GDP - Second Estimate (4.2% actual v. 4.0% expected), pending home sales (3.3% actual v. 0.5% expected), Chicago PMI (64.3 actual v. 54.8 expected), and Michigan Sentiment - Final (82.5 actual v. 80.0 expected) all beat. The Fed's preferred measure of inflation, PCE Prices - Core was in-line at 0.1%. 
  • This week's auctions were average
  • Tuesday's $29 bln 2y note auction drew 0.530% (WI 0.532%) and a strong 3.48x bid/cover. Indirect bids (39.8%) were well above their 12-auction average, and provided support at direct bids (12.1%) were light. Primary dealers were left with 48.1% of the supply. 
  • Wednesday's slightly better than average $35 bln 5Y note auction. The auction drew 1.646% and a solid 2.81x bid/cover. A strong indirect bid (52.7%) provided support as the direct bid (10.8%) was light. Primary dealers ended up with 36.5% of the supply. 
  • Thursday's average $29 bln 7Y note auction drew 2.045% and an in-line 2.57x bid/cover. Indirect (48.8%) and direct (20.4%) bids were close to their 12-auction averages, leaving primary dealers with just 30.8% of the supply. 
  • Up front, the 2Y eased -1bp to 0.484%. The yield continues to test the key 0.500% area. 
  • In the belly, the 5Y fell -5 bps to 1.628%. Action over the course of the week flirted with resistance in the 1.650% area that was guarded by both the 50 and 100 dma, but could not breakout. 
  • The 10Y shed -6bps to 2.343%. This week's buying dropped the benchmark yield to its lowest levels since June 2013
  • At the long end, the 30Y pressed lower by -6bps to 3.080%. The yield on the long bond pressed to levels last seen in May 2013. 
  • This week's action flattened the yield curve as  the 2-10-yr spread tightened to 186bps.  
The Week Ahead
  • Markets are closed Monday in observance of Labor Day
  • Tuesday will see ISM Index and construction spending (10) cross the wires. 
  • Wednesday's data includes the weekly MBA Mortgage Index (7), factory orders (10), the Fed's Beige Book, and auto/truck sales (14). 
  • Data picks up on Thursday with Challenger Job Cuts (7:30), ADP Employment Change (8:15), initial and continuing claims, the trade balance, productivity-rev., unit labor costs (8:30), and ISM Services (10). Cleveland's Mester discusses her economic outlook and monetary policy (12:30), Fed Governor Powell speaks at a Money Marketeers of New York City dinner (18:15), and Minny's Kocherlakota participates in a town hall discussion (21).
  • Friday's data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, the unemployment rate, hourly earnings, and average workweek (8:30) are scheduled for release. Boston's Rosengren participates in a bankers' conference (15:45).

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