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Bond Markets Lose Ground After Econ Data
Posted to: Micro News
Wednesday, January 15, 2014 8:52 AM

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After one of the narrowest, least eventful overnight sessions in recent memory, bond markets had been trading in slightly stronger territory heading into this morning's economic data.  That's quickly changed as both PPI and NY Fed's Empire State Manufacturing came in stronger than expected.

Empire State:

  • Headline index +12.51 vs 3.75 forecast, 2.22 previously
  • Employment index +12.2 vs 0.0 previously
  • New Orders 10.98, highest in 2 years, -1.69 previously
  • Our take on share of market movement: 8/10
  • Full Release

Producer Price Index

  • December PPI +0.4 vs +0.4 forecast, -0.1 in Nov
  • Core PPI +0.3 vs +0.1 forecast
  • Y/Y Core +1.4 vs +1.3 forecast
  • Nearly half of increase in core PPI is due to tobacco
  • Our take on share of market movement: 2/10
  • Full Release

While the clear motivation for bond markets to sell-off is Empire State Index, PPI certainly didn't help.  That said, the tobacco caveat robs the headline of much market-moving punch. 

Empire State on the other hand is important as the big improvement in New Orders and Employment is one of the first pieces of January data that suggests the super low December Payrolls number (that came out on Jan 10th) may end up being an outlier. 

As you can imagine, that would be sort of a big deal and the only reason bond markets haven't sold off more aggressively is that Empire State is not as much of a market mover as, say, the Philly Fed Index or Chicago PMI, which are seen as a more representative slices of the American economic pie.

As it stands, Fannie 4.0s are now down 5 ticks at 103-17.  10yr yields are up 2.6bps at 2.895.  All of that happened in the first few seconds following the data. 

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