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Philly Fed Much Weaker, but so are Bond Markets; Negative Reprice Potential
Posted to: Micro News
Thursday, February 20, 2014 10:29 AM

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Bond markets jumped into positive territory for about half a second following the Philly Fed headline.  Shortly thereafter, they lived up to our every cynical expectation by holding flat despite the massive miss. 

What's all this about?  In a word: weather.  Love it or hate it, it's having an impact on data.  In this morning's 'Day Ahead,' I noted that Philly Fed didn't hold any bullish possibility for bond markets as a negative result could be dismissed as a byproduct of the weather. 

One of the internal components of the Philly Fed data made the weather-based dismissal even easier to stomach.  The "6-month outlook" gives respondents a chance to comment on how they view business conditions over a 6-month time frame.  Whereas the headline index fell to -6.3 from 9.4 last month, the 6-month outlook rose to 40.2 from 34.4.  That stark contrast leaves little to the imagination. 

Even in the first paragraph of the report itself: " but comments suggested that much of the weakness was attributable to the severe winter weather that affected the region during the survey period."

Here's a rundown of the numbers:

Philadelphia Fed Business Outlook Survey

  • -6.3 vs 8.0 forecast and 9.4 previously
  • 6-mo outlook 40.2 vs 34.4 previously
  • New orders -5.2 vs 5.1 previously
  • Employment Index 4.8 vs 10.0 previously
  • Business conditions lowest since Feb 2013, but respondents widely cite weather-related disruptions. (these are not economists or financial market people, but actual businesses in the Philadelphia Federal Reserve district).

Bond markets are sliding now, with Fannie 4.0s off 5 ticks and 10yr yields up nearly 3bps.  Negative reprices are possible for earlier-pricing lenders.




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