The Week in Review/Week AheadThe Week in Review
Analyst: Jonathan Garber
The Week Ahead
- Treasuries endured a second week of selling as maturities pushed lower in four of five sessions.
- The complex was battered amid speculation the Fed will take a more hawkish tone at next week's meeting as recent economic data has pointed to a strengthening economy.
- Macro concerns have quieted down in Gaza and Eastern Europe, but remain a flashpoint as President Obama talked tough on ISIL and ordered airstrikes in Syria.
- Markets are likely to remain schizophrenic through next week as Scotland holds a referendum for its possible independence from the United Kingdom.
- Economic data was limited to a few notable reports as wholesale inventories (0.1% actual v. 0.5% expected) saw a smaller than anticipated build and Michigan Sentiment (84.6 actual v. 83.5 expected) outpaced estimate while retail sales (0.6%) and business inventories (0.4%) were in-line.
- Auctions started off average before concluding on a high note.
- Tuesday's average $27 bln 3Y note auction drew 1.066% (WI 1.067%) and a lighter than average 3.17x bid/cover. Both indirect (33.1%) and direct (20.2%) bids outpaced their 12-auction averages, leaving primary dealers with 46.7% of the supply.
- Wednesday's in-line $21 bln 10Y note reopening drew 2.535% and an average 2.71x bid/cover. A strong indirect (53.0%) takedown helped offset the weak direct (13.5%) bid. Primary dealers ended up with 33.5% of the supply.
- Thursday's strong $13 bln 30Y bond reopening drew 3.240% and a solid 2.67x bid/cover. Indirect (45.5%) and direct (21.8%) bids were both strong, leaving primary dealers with just 32.7% of the supply.
- Up front, the 2Y climbed +5bps to 0.560% as trade tested levels last seen in May 2011.
- In the belly, the 5Y added +14bps to 1.819%. The yield finished Friday's session at a one-year high, and remains within a handful of bps of its highest print since July 2011.
- The 10Y surged +17bps to 2.614%. Friday's session saw the benchmark yield post a two-month high.
- At the long end, the 30Y rallied +14bps to 3.351%. A run through resistance at current levels sets up a test of the 200 dma near 3.500%.
- Selling swung the curve steeper as the 2-10-yr spread widened to 205bps.
- Monday's data includes Empire Manufacturing (8:30), industrial production, and capacity utilization (9:15).
- Tuesday will see PPI (8:30) and Net Long-Term TIC Flows (16).
- Data picks up on Wednesday with the weekly MBA Mortgage Index (7), CPI, current account balance (8:30), NAHB Housing Market Index (10), and the FOMC rate decision (14).
- Data continues to flow on Thursday as initial and continuing claims, housing starts and building permits (8:30), and the Philly Fed (10) are released. Dallas' Fisher participates in an event celebrating 100 years of the Federal Reserve System (20:15).
- Friday's data is limited to leading indicators (10).