Bond markets were against the ropes from the outset this morning as a healthy clip of overnight data and events in Europe pressured safe-haven German Bunds and US Treasuries higher. UK's analogous benchmark (the "Gilt") was the worst of the bunch owing to inflation comments from a Bank of England governor. Much like MBS stay relatively correlated with Treasuries, all securities with similar risk, duration, and liquidity profiles exhibit varying levels of correlation. Bunds and Treasuries have been best friends in that regard since the major shift into high gear of EU panic in mid 2011, but Gilts are in the same circle of friends, even if not as friendly as Germany and the US. Stronger economic data in the Eurozone as well as well-received Italian debt auctions were factors in the weakness as well. MBS camd in the door at 103-24 and despite holding ground initially following the as-expected Retail Sales report (they actually strengthened briefly) soon succumbed to Treasury flows at 9am. They've been holding fairly sideways since then with weaker stocks constituting a positive influence and the looming 10yr Auction a negative. The auction is at 1pm and could take things either way.
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Head Fake Bounce After Data, Now Back To Weakest Levels
As-expected Retail Sales data is had been helping to push back against a collection of overnight data and events in Europe and Asia that conspired to lift 10yr yields to 2.02 earlier this morning, though we're right back to the weakest levels of the morning now.
Before that, Asia was fairly inconsequential last night, despite ongoing volatility in the Yen (yeah, currency is hot-topic suddenly) surrounding the G7 meeting. Chinese holidays continue to keep much of the Asian trading contingent sidelined this week. US Treasuries and Euros (yeah... the currency), didn't budge until the European session began.
When it did, it was almost an exclusively negative thing for domestic bond markets. Eurozone Industrial Production came in at +0.7 vs +0.2 expectations, and Italy's debt auctions were well-received. Unlike a well-received US Treasury auction, when Europe's periphery sees strong auctions, it typically has a negative impact on safer haven German Bunds and US Treasuries. Hawkish comments inflation comments from the Bank of England also weighed on safe-haven debt (British Gilts actually led the weakness, followed by German Bunds, and US Treasuries).
This ushered Treasuries in the door between 2.0 and 2.01. We saw 2.019 ahead of Retail Sales, but the tepid report helped a moderate bounce lower to 2.0. All the while MBS haven't moved much, holding a range from 102-23+ to 102-25. Import/Export data was released at the same time, but even spending this one sentence mentioning it, is more than it deserves.
Whatever positive response we might have been hoping for following Retail Sales has just now been fully unwound as 10yr yields cross back over the highs of the morning. MBS will likely be breaking their 102-23 lows and we'll likely be sending you another update at the next notable stop on this little morning roller coaster. 10's are currently up to 2.0241 and climbing.
ECON: Retail Sales Rise 0.1 pct, As Expected
- Headline Sales +0.1 vs +0.1 Consensus, +0.5 Previous
- Excluding Gasoline +0.1 vs +0.8 Previous
- Gasoline +0.2 vs -1.7 Previous
- Cars/Parts -0.1 vs +1.2 Previous
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for
seasonal variation and holiday and trading-day differences, but not for price changes, were $416.6 billion, an increase of 0.1 percent
(±0.5%)* from the previous month and 4.4 percent (±0.7%) above January 2012. Total sales for the November 2012 through January
2013 period were up 4.5 percent (±0.5%) from the same period a year ago. The November to December 2012 percent change was
unrevised from +0.5 percent (±0.3%).
Retail trade sales were up 0.1 percent (±0.5%)* from December 2012 and 4.1 percent (±0.8%) above last year. Nonstore retailers were
up 15.7 percent (±2.3%) from January 2012 and auto and other motor vehicle dealers were up 9.4 percent (±2.3%) from last year.
Live Chat Featured Comments
Matthew Graham : "RTRS- U.S. DEC BUSINESS INVENTORIES +0.1 PCT (CONSENSUS +0.3 PCT) VS NOV +0.2 PCT (PREV +0.3 PCT) "
Anthony Hicks : ".25 sounds about right"
B-C : "my bank is worse than yesterday but only .25"
Mike Pennington : "GMAC 77.5 bps worse this morning, OUCH!! How that is not a sign of things to come."
Matthew Graham : "G7 may restrict Japan buying of TSYs... that's the hidden knife in the back of domestic bond markets at the moment. I'm looking for an article on it"
Gus Floropoulos : "liquidity issues perhaps"
Paul L. Martin : "Lets' see...retail sales are less on higher taxes, (slightly) higher gas prices curtail spending, president proposes even more higher taxes and 'spending' cuts, import and export prices are slightly less than expected all ='s MBS sell-off??? Oh yeah, forgot, stocks can only go up in value. "
Matthew Graham : "RTRS- SLOAN: WELLS WON'T BE INTERESTED IN BUYING MORTGAGE SERVICING RIGHTS "
Matthew Graham : "RTRS - SLOAN: WELLS CONTINUES TO BE ACTIVE IN LOOKING AT ACQUISITIONS OF COMPANIES AND LOAN PORTFOLIOS "
Matthew Graham : "RTRS - WELLS FARGO CFO TIM SLOAN SAYS BANK EXPECTS MORTGAGE ORIGINATIONS TO DECLINE BUT STILL 'GOOD OPPORTUNITY' IN BUSINESS "
Matthew Graham : "RTRS- US JAN GASOLINE SALES +0.2 PCT VS DEC -1.7 PCT"
Oliver S. Orlicki : "not going to help our cause this morning. Need the auction to go well. Float boat is running out of rations"
Matthew Graham : "RTRS - US JAN EX-GASOLINE SALES +0.1 PCT VS DEC +0.8 PCT"
Matthew Graham : "RTRS- US JAN RETAIL SALES EX-AUTOS/GASOLINE +0.2 PCT VS DEC +0.7 PCT (PREV +0.6 PCT) "
Jude Bridwell : "they'll somehow spin it as positive that is wasn't negative"
Matthew Graham : "RTRS- US JAN RETAIL SALES EX-AUTOS +0.2 PCT (CONS +0.1 PCT) VS DEC +0.3 PCT (PREV +0.3 PCT) "
Matthew Graham : "RTRS - US JAN RETAIL SALES +0.1 PCT (CONSENSUS +0.1 PCT) VS DEC +0.5 PCT (PREV +0.5 PCT) "
Jude Bridwell : ".1, wow, setting those expectations high as usual"
Jason Sheaffer : "Stock futures up again, something tells me we will break all time highs on Dow by the end of the week. And why not, I mean the economy is amazing & we have no issues."
Brayden Alexander : "Forecast is only .1 what can we really hope for?"
Oliver S. Orlicki : "we need a swing and a miss on retail sales to get this turned in the right direction"
John Tassios : "will be under pressure all day until 10 Year bond sale at 1:00 / same thing tomorrow for 30 year bond sale / hopefully on friday , we have a little rally in front of weekend and after bond auctions are done"
Brayden Alexander : "Ughhhh 102-24 ouch"
Christopher Stevens : "POTUS did acknowledge the difficulty that many would-be borrowers face in shopping for a home loan. "Even with mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected," he said. "
Victor Burek : "gm, i listened to it all. it wasnt as confrontational as i thought it might be"
Jeff Anderson : "Gm, all. Did miss something on the POTUS' speech, other than willing to compromise on immigration, that was bond unfriendly? Not that the immigration issue relates to bonds but everything else sounded like more of the same before I couldn't listen anymore. Anyone listen to the whole speech. And thenRubio goes and creates a Saturday Night Live skit with the water bottle. Nice going Republicans."