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Bond Markets Bounce Back After Losing Ground on 830am Data Glut
Posted to: Micro News
Thursday, May 15, 2014 9:04 AM

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The first two sentences of the day ahead are:

Today is by far and away the busiest day of economic data this week.  This presents a good opportunity to feel out what's important to the bond market.

We already have the answer.  Markets made it blatantly obvious right off the bat.  All three economic reports pointed to higher rates this morning, and indeed, the first move was a quick, moderate move into weaker territory.  But just as quickly, we're back into positive territory.  What's up with that?!  If we're only looking at the econ data and US trading levels, it makes no sense.

Things begin making more sense when we look at European trading levels, especially in core debt markets like Germany and The UK.  While Treasuries had their mini selling spree, European debt refused to follow, ultimately heading for the lowest yields of the year and bringing US Treasuries along for the ride.

The suggestion is that the momentum trade--the 'flavor of the month,' if you will--is default strength for bond markets led by Europe, mostly in anticipation of some form of quantitative easing and rate cuts at the June meeting.  Geopolitical risk could be a supporting actor for European bond market strength as well.

Whatever the case, global bond market momentum is more important to US Treasuries than this morning's strong data.  MBS are just along for the ride (i.e. global sovereign debt trading is setting the tone and MBS are following as they normally do).

Here's a rundown of the data:

Jobless Claims

  • 297k vs 320k forecast, lowest since May 2007
  • continued claims 2.667 mln vs 2.693 mln forecast

Consumer Price Index (CPI)

  • +0.3 vs +0.3 forecast
  • Excluding food/energy, +0.2 vs +0.1 forecast

Empire State Manufacturing

  • +19.01 vs +5.0 forecast
  • Employment Index +20.88 vs +8.16 previously
  • New Orders +10.44 vs -2.77 previously

Treasuries are currently split, with 2-7yr maturities slightly weaker and 10/30yr maturities slightly stronger.  MBS are 1 tick higher on the day in Fannie 3.5 and 4.0.  The move into positive territory basically leveled-off and headed back toward unchanged levels (which is still amazing given the economic data above).

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