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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
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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