The Week in Review/Week AheadThe Week in Review
Analyst: Jonathan Garber
The Week Ahead
- Treasuries were pressured this week as mostly better than expected data ignited fears the Fed may begin to scale back its bond-buying scheme as early as the December meeting.
- Friday's strong nonfarm payroll report (203K actual v. 188K expected) saw the unemployment rate fall to 7.0% (7.2% previous), and capped off a strong week of data.
- ISM Index (57.3 actual v. 55.5 expected), construction spending (0.8% actual v. 0.3% expected), new home sales (444K actual v. 420K expected), GDP - Second Estimate (3.6% actual v. 3.0% expected), and Michigan Sentiment (82.5 actual v. 75.1 expected) all topped forecasts.
- ISM Services (53.9 actual v. 55.0 expected) and personal income (-0.1% actual v. 0.3% expected) were the only notable misses.
- The latest Fed Beige Book suggested, "The economy continued to expand at a modest to moderate pace from early October through mid-November."
- This week's selling had the biggest impact on the belly of the curve, where yields climbed as much as +12bps.
- The 5y jumped +11bps, and managed to breakout above the 1.450% area that had acted as a lid since the middle of September. Friday's early selling ran the yield up to 1.545% before settling the day @ 1.505%.
- Aggressive selling in 10s ran the benchmark yield through key resistance in the 2.800% area. On the week, the 10y climbed +12bps to finish @ 2.883%. Traders continue to monitor the 3.000% area that corresponds with the September highs.
- Outperformance at the long end made for a +7bp move in the 30y. The yield on the long bond hit a high of 3.976%, its highest since August 2011, in response to the jobs report; however, it fell to 3.917% by Friday's cash close.
- A steeper curve developed over the course of the week as the 2-10-yr spread widened to 258bps.
- There is no data on Monday. Fed Chairman Ben Bernanke will attend a meeting of the Financial Stability Oversight Committee (14:30). Richmond's Lacker will give his economic outlook in Charlotte, NC (12:50); STL's Bullard will be on his home turf discussing monetary policy and the economy (13:05); Dallas' Fisher will be in Chicago, IL to speak on "U.S. and Regional Economic and Banking Trends" (13:15) and to discuss Fed policy and the economy (18:30).
- Data kicks off for the week on Tuesday with wholesale inventories and JOLTS - Job Openings (10). Treasury will auction $30 bln 3y notes.
- Wednesday's data is limited to the weekly MBA Mortgage Index (7) and the Treasury budget (14). Treasury will hold a $21 bln 10y note reopening. Treasury Secretary Lew will testify on the IMF in front of the House Financial Services Committee (10).
- Data picks up on Thursday with initial and continuing claims, retail sales, retail sales ex-auto, import/export prices (8:30), and business inventories (10). Treasury will reopen $13 bln 30y bonds.
- Friday will see PPI and core PPI (8:30).