The Week in Review/Week AheadThe Week in Review
Analyst: Jonathan Garber
The Week Ahead
- Treasuries saw strong gains this week as equity markets came under significant pressure.
- Maturities ended the week their streak of seven consecutive gains intact.
- A quiet week of economic data saw initial claims drop to 300K (325K expected), the lowest since May 2007. Also notable was the hot 0.5% PPI print (0.1% expecred) and the Michigan Sentiment (82.6 actual v. 81.0 expected) beat.
- The latest FOMC minutes were released on Wednesday, suggesting inflation risks remain tilted to the downside and the winter weather was to blame for the recent slowdown in economic activity.
- This week's heavy buying had the biggest impact on the belly of the curve as yields there were lower by as much as -15bps.
- The 2y sank -7bps to 0.351% as trade tests the March lows.
- Heavy buying the 5y space dropped the yield -13bps to 1.567%. Traders will be focused on 1.550% support over the coming days as both the 50 and 100 dma lurk in the vicinity.
- The 10y shed -11bps to 2.619% as action closed Friday's session at its lowest level since March 3. The lower end of the 2.600%/2.800% range that has held up since late-January will be in focus over the coming days.
- At the long end, the 30y pressed lower by -10bps to 3.477%, marking its lowest close since early July. The yield on the long bond appears to have cleanly broken below the important 3.550% level, setting up a potential move into the 3.150% region.
- This week's auctions were solid, but not spectacular.
- Tuesday's solid $30 bln 3y note auction drew 0.895% and a 3.36x bid/cover. A slightly disappointing indirect bid (27.2%) was more than offset by the strong direct bid (23.9%). Primary dealers ended up with 48.9% of the supply.
- Wednesday's in-line $21 bln 10y note reopening drew 2.720% (WI 2.707%) and a solid 2.76x bid/cover. Indirect (44.6%) and direct (15.2%) bids both outpaced their 12-auction averages, leaving primary dealers with 40.2% of the supply.
- Thursday's solid $13 bln 30y reopening. The reopening drew 3.525% and a solid 2.52x bid/cover (12-auction average 2.38x). Solid takedowns by both indirect (43.3%) and direct (17.9%) bidders left primary dealers with 38.8% of the supply.
- A steeper curve persisted as the 5-30-yr spread widened to 191bps.
- Monday's data includes retail sales (8:30) and business inventories (10).
- Tuesday's data includes CPI, Empire Manufacturing (8:30), Net Long-Term TIC Flows (9), and NAHB Housing Market Index (10). ATL's Lockhart will give opening remarks at the 2014 Financial Markets Conference (8:30) before Fed Chair Janet Yellen addresses the crowd (8:45). Philly's Plosser moderates a discussion on "Adding Fuel to the Engine: Will More Private Liquidity Yield a Safer, More Efficient Financial System?" (15). Boston's Rosengren will give his economic outlook (16) and Minny's Kocherlakota will participate in a Town Hall Forum (20).
- Wednesday will see the weekly MBA Mortgage Index (7), housing starts, building permits (8:30), industrial production, capacity utilization (9:15), and the Fed's Beige Book. Fed Chair Janet Yellen will speak at the Economic Club of New York (12:15). ATL's Lockhart will again make remarks at the 2014 Financial Markets Conference (8:20), and will be followed by Fed Governor Stein taking place in a panel on "Greasing the Skids: Was Quantitative Easing Needed to Unstick Markets? Or Has It Merely Sped Us toward the Next Crisis?" (8:30). Dallas' Fisher will give his U.S. and regional economic outlook (13:25).
- Data concludes for the week on Thursday with initial and continuing claims (8:30), and Philly Fed (10).
- Markets are closed Friday in observance of Good Friday.