Updated: 04-21-2014

The Week in Review/Week Ahead
Updated: 17-Apr-14  02:45PM ET
Analyst: Jonathan Garber

The Week in Review: Treasuries Endure Heavy Selling
  • Treasuries endured heavy selling this week.
  • Most of the week's losses came on Friday as a de-escalation in Ukraine and better than expected data sparked a sharp sell off.
  • EU, Russian, U.S., and Ukrainian officials drafted a framework calling for the "immediate start of a nationwide dialogue within the framework of the constitutional process" that "must be resolved by the Ukrainians themselves concerning an end to the conflict."   
  • On Friday, initial (304K actual v. 312K expected) and continuing (2739K actual v. 2800K expected) claims both topped forecasts while the Philly Fed (16.6 actual v. 8.6 expected) nearly double estimates. 
  • Data over the rest of the week was mixed as capacity utilization (79.2% actual v. 78.8% expected), industrial production (0.7% actual v. 0.5% expected), and retail sales (1.1% actual v. 1.0% expected) topped estimates while business inventories (0.4% actual v. 0.6% expected), Empire Manufacturing (1.3 actual v. 7.5 expected), housing starts (910K actual v. 955K expected) and building permits (990K actual v. 1003K expected) missed.
  • The latest Fed Beige Book suggested 'economic activity increased in most regions of the country since the previous report' while Fed Chair Janet Yellen indicated the central bank remains committed to an accommodative policy and that there is greater chance inflation runs below the Fed's target.
  • This week's selling had the biggest impact on the belly as the 5y surged +17bps to 1.731%. The heavy selling ran the 5y through 1.700% resistance, causing the yield to close at its highest level since April 3. Many traders will be watching the 1.800% area closely as it corresponds with the September and April highs. 
  • The 10y rallied +11bps to 2.721%. Selling on Friday was responsible for more than +8bps, and ran action back above the 2.680% pivot. Resistance near 2.725% is defended by the 200 dma. 
  • The wings of the curve outperformed as  the 2y added +4bps to 0.399% and the 30y tacked on +5bps to 3.517%.
  • The 30y gained +5bps on the week with selling on Friday responsible for a +6bp advance. The yield on the long bond spent the entire week below the key 3.550% level, and pressed to its lowest close since June. What was previously 3.550% support will now serve as resistance, and the inability to retake that level puts 3.150% in the cross hairs. 
  • A flatter yield curve developed as the 5-30-yr spread narrowed to 178.5bps, a level last seen in the fall of 2009.
The Week Ahead
  • Monday's data is limited to leading indicators (10).
  • Tuesday will see the FHFA Housing Price Index (9) and existing home sales (10). Treasury will auction $32 bln 2y notes
  • Wednesday's data includes the weekly MBA Mortgage Index (7) and new home sales (10). Treasury will hold a $35 bln 5y note auction
  • Data picks up a tad on Thursday with initial and continuing claims and durable orders (8:30). Treasury will auction $29 bln 7y notes.
  • Data concludes for the week on Friday with Michigan Sentiment - Final (9:55).

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