Updated: 02-10-2016

The Market at 08:52AM ET
10-Year: -9/32…1.76…
EUR/USD: 1.1229…
USD/JPY: 114.88…

Moving the Market

  • MBA Mortgage Index for the week ending 2/6: Actual +9.3%, Prior -2.6%
  • Fed Chair Yellen (FOMC voter) testifies before House Financial Services Committee: Fed Chair expects economy to warrant only a gradual rise of rates; financial strains could weigh on current outlook
  • Crude Inventories for the week ending 2/6 (10:30 ET)
  • $23 bln 10-year note auction (results at 13:00 ET)
  • San Francisco Fed President Williams (non-FOMC voter) (13:30 ET)
  • January Treasury Budget (14:00 ET)

08:52AM ET

Treasuries Rally After Yellen's Prepared Remarks

  • Treasuries are lower this morning after Fed Chair Yellen said that interest rates would rise gradually but that market volatility would affect the pace
  • Financial conditions in the United States have recently become less supportive of growth, with declines in broad measures of equity prices, higher borrowing rates for riskier borrowers, and a further appreciation of the dollar
  • Committee expects that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in coming years and that labor market indicators will continue to strengthen
  • The FOMC anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run. This expectation is consistent with the view that the neutral nominal federal funds rate--defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy was operating near potential--is currently low by historical standards and is likely to rise only gradually over time
  • Of course, monetary policy is by no means on a preset course. The actual path of the federal funds rate will depend on what incoming data tell us about the economic outlook, and we will regularly reassess what level of the federal funds rate is consistent with achieving and maintaining maximum employment and 2 percent inflation
  • Yield Check:
    • 2-yr: +4 bps to 0.73%
    • 5-yr: +3 bps to 1.19%
    • 10-yr: +3 bps to 1.76%
    • 30-yr: +3 bps to 2.58%

10-Yr: -9/32… EUR/USD: 1.1229… USD/JPY: 114.88…

08:26AM ET

Risk Aversion Abates

  • Spreads between eurozone core and periphery sovereign debt are narrowing this morning as global markets get some relief from the persistent risk aversion that has dominated markets since the beginning of 2016. The December industrial production data from the eurozone and the U.K. were very disappointing and will give the European Central Bank even more reason to ease policy at the March meeting. Germany sold EUR 5 bln of 2-year Schatz at -0.500% this morning
  • European Economic Data:
    • U.K. industrial production fell 1.1% m/m in December, worse than both expectations and November's decline of 0.8% (revised from -0.7%). December's drop was the worst since 2013
      • Manufacturing production: -0.2% m/m in December, -0.3% prior
    • Italian industrial production fell 0.7% m/m in December, worse than expectations and the 0.5% slide in November
    • French industrial production declined 1.6% m/m in December, missing expectations for a gain after a 0.9% contraction in November
      • Manufacturing production: -0.8% m/m in December
  • Yield Check:
    • France, 10-yr OAT: +1 bp to 0.62%
    • Germany, 10-yr Bund: +3 bps to 0.26%
    • Greece, 10-yr note: +15 bps to 10.77%
    • Italy, 10-yr BTP: -4 bps to 1.64%
    • Portugal, 10-yr note: unch at 3.46%
    • Spain, 10-yr ODE: -6 bps to 1.72%
    • U.K., 10-yr Gilt: +3 bps to 1.44%

10-Yr: -12/32… EUR/USD: 1.1256… USD/JPY: 115.00…

07:18AM ET

Treasuries Slide Ahead of Yellen Testimony

  • U.S. Treasuries are trading lower this morning as markets try a risk-on posture for a change. Fed Chair Yellen will speak to the House Financial Services Committee at 10:00 ET today and investors are waiting to see if her comments justify the dovishness that the market has already priced into rates. There is now a 70% chance that the Fed will not hike again this year, according to Fed fund futures. The S&P 500 is set to open up 1.03% to 1,872.9 and the U.S. Dollar Index is down 0.04% to 96.04. WTI crude is up 2.29% to $28.58/bbl. and gold is down 1.23% to $1,183.90/troy oz.
  • Yield Check:
    • 2-yr: +4 bps to 0.73%
    • 5-yr: +4 bps to 1.19%
    • 10-yr: +3 bps to 1.76%
    • 30-yr: +4 bps to 2.59%
  • International News:
    • U.K. industrial production fell 1.1% m/m in December, worse than both expectations and November's decline of 0.8% (revised from -0.7%). December's drop was the worst since 2013
      • Manufacturing production: -0.2% m/m in December, -0.3% prior
    • Italian industrial production fell 0.7% m/m in December, worse than expectations and the 0.5% slide in November
    • French industrial production declined 1.6% m/m in December, missing expectations for a gain after a 0.9% contraction in November
      • Manufacturing production: -0.8% m/m in December
    • Japan's consumer goods price index fell 0.9% m/m in January, worse than both the consensus forecast and the 0.3% fall in December
    • In Australia, Westpac Consumer Sentiment rose 4.2% in February after falling 3.5% in January. Analysts had forecast another decline
      • HIA New Home Sales grew 6.0% m/m in December after falling 2.7% in November
    • IMF Managing Director Christine Lagarde said that Ukraine's failure to improve its governance and reduce corruption makes it "hard to see how the IMF Ukraine program can continue"
  • Data out Today:
    • MBA Mortgage Index for the week ending 2/6: Actual +9.3%, Prior -2.6%
    • January Treasury Budget (14:00 ET)
    • Crude Inventories for the week ending 2/6 (10:30 ET)
  • Treasury Auction:
    • $23 bln 10-year note auction (results at 13:00 ET)
  • Fed Speakers:
    • Fed Chair Yellen (FOMC voter) testifies before House Financial Services Committee (10:00 ET)
    • San Francisco Fed President Williams (non-FOMC voter) (13:30 ET)

10-Yr: -10/32… EUR/USD: 1.1269… USD/JPY: 114.96…

03:35PM ET

Yield Curve Flattens

  • U.S. Treasuries traded in ranges today but the yield curve flattened as equities found buying interest and the U.S. Dollar Index fell to a multi-month low before rebounding mid-session (-0.51% to 96.08). Wholesale inventories unexpectedly declined in December and the 3-year note auction was not very strong, although yields have fallen so much in the past few weeks that this could be expected. Tomorrow, Fed Chair Yellen will testify before the House Financial Services Committee (10:00 ET). The S&P 500 is now up 0.12% to 1,855.7
  • Yield Check:
    • 2-yr: +1 bp to 0.68%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -2 bps to 1.73%
    • 30-yr: -2 bps to 2.55%
  • News:
    • Wholesale inventories fell 0.1% in December, missing the Briefing.com consensus for no change but improving upon November's 0.3% slide
      • Inventories of durable goods in December declined 0.3% after a 0.4% decline in November. The December downturn was governed by a 0.5% decline in machinery inventories and a 4.4% decline in metals inventories. The only areas that saw inventories increase were automotive (+0.3%), electrical (+1.0%), and miscellaneous durables (+1.6%)   
      • Inventories of nondurable goods increased 0.1% in December after declining 0.3% in November. The uptick was paced by a 0.8% increase in inventories for drugs and a 2.1% increase in apparel inventories. The only nondurable areas that saw inventories decline in December were petroleum (-7.8%) and alcohol (-1.0%)
    • December JOLTS Job Openings 5.607 mln vs 5.431 mln last month
    • The $24 bln 3-year note auction was met with tepid demand:
      • High yield: 0.844%
      • Bid-to-cover: 2.74
      • Indirect bid: 41.5%
      • Direct bid: 15.0%
  • Commodities:
    • WTI crude: -4.55% to $28.34/bbl.
    • Gold: -0.73% to $1,189.10/troy oz.
    • Copper: -2.58% to $2.0365/lb.
  • Currencies:
    • EUR/USD: +0.91% to $1.1289
    • USD/JPY: -0.45% to 115.06
  • Data out Wednesday:
    • MBA Mortgage Index for the week ending 2/6 (07:00 ET)
    • Crude Inventories for the week ending 2/6 (10:30 ET)
    • January Treasury Budget (14:00 ET)
  • Treasury Auction:
    • $23 bln 10-year note auction (results at 13:00 ET)
  • Fed Speakers:
    • Fed Chair Yellen (FOMC voter) testifies before House Financial Services Committee (10:00 ET)
    • San Francisco Fed President Williams (non-FOMC voter) (13:30 ET)

10-Yr: +6/32… EUR/USD: 1.1289… USD/JPY: 115.06…

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