After holding supportive ground on Friday, bond markets may be facing the prospect of defending that stability before Monday's domestic session begins thanks to Fiscal Cliff headlines over the weekend. As the year draws to an end we could see some measure of increased urgency in negotiations on tax and spending cuts. Whether or not this is legitimate urgency or simply politicians' attempts to appear to not be sitting idly by as the Cliff approaches, doesn't matter as much as the sense of progress conveyed by the headlines.
For example, over the weekend, Boehner floated a Fiscal Cliff proposal that broke some new ground as it finally offered specifics on tax hikes and spending cuts. Here are some of the vital details from Reuters:
Boehner plan would bring top US income tax rate to 39.6 pct-source - House of Representatives Speaker John Boehner's latest "fiscal cliff" proposal to President Barack Obama would see the top income tax rates rise to 39.6 percent from 36 percent for those with net incomes above $1 million a year, according to a source familiar with the talks. The source, who asked not to be identified, emphasized that the income tax rate increase would be in exchange for "significant entitlement reforms/spending cuts."
The White House won't accept this deal as both sides of the aisle are full aware that it's merely a trial balloon--another card laid down in the poker match, if you will. The fairest guess would be that the spending cuts demanded in exchange for the tax hike on the wealthy were out of balance as far as the White House was concerned. But as the White House noted over the weekend, this is "progress."
Even if the two sides aren't able to finalize a deal before Christmas, it's hard not to view such weekend proposals as a relative indication of progress compared to recent political posturing and an ongoing sense of pouty resignation from both sides of the aisle. Such progress likely carries negative implications for bond markets, but just how negative, we can't yet be sure. If politicians are even able to LOOK LIKE they're getting close to a deal before Christmas, bond markets run the risk of quickly being forced to defend recently supportive levels.
Those eventualities will serve as a constant, potentially scene-stealing backdrop for the otherwise jam-packed week of economic events that can also help shape trading momentum heading into the holiday week. The laundry list of economic reports is below, but in particular, note the presence of another round of Treasury Auctions this week. Given last week's 3/10/30 cycle, we'd normally have this week off, but things have been moved forward due to the shortened week beginning 12/24/12.
Live Econ Calendar:
Week Of Mon, Dec 17 2012 - Fri, Dec 21 2012
Mon, Dec 17
NY Fed manufacturing
Treasury International Capital
2-Yr Note Auction
Tue, Dec 18
NAHB housing market indx
5-Yr Treasury Auction
Wed, Dec 19
Mortgage market index
7-Yr Note Auction
Thu, Dec 20
Initial Jobless Claims
Existing Home Sales
FHFA Home Prices
Philly Fed Index
Fri, Dec 21
* mm: monthly | yy: annual | qq: quarterly | "w/e" in
"period" column indicates a weekly report
* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary
Release | Fin: Final Release
* (n)SA: (non) Seasonally Adjusted
* PMI: "Purchasing Managers Index"
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