Bond Ticker

3:22 pm - Yellen Says the Case for a Rate Hike Has Strengthened

  • U.S. Treasuries suffered significant losses today after Fed Chair Yellen's speech in Jackson Hole led traders to price in a greater chance for a September rate hike. While the initial interpretation by markets was positive (dovish), Fed Vice Chair Fischer clarified her remarks later in the morning and that sent U.S. Treasuries reeling. U.S. stocks quickly joined the sell-off on the fear of higher interest rates and the U.S. Dollar Index reversed higher to finish the week with a solid gain (+0.75% to 95.48). The S&P 500 is down 0.20% to 2,168.3. The second official estimate of Q2 U.S. GDP growth was released this morning and showed the economy expanding at just 1.1%, but Fed officials appear confident that growth will return to a 3% seasonally adjusted annual rate in the third quarter. Fed Governor Jerome Powell echoed his remarks from earlier in August when he said that the Fed should gradually tighten monetary policy but should also be patient. Fed governors always vote on the FOMC
  • Yield Check:
    • 2-yr: +4 bps to 0.84%
    • 5-yr: +6 bps to 1.22%
    • 10-yr: +5 bps to 1.62%
    • 30-yr: +4 bps to 2.29%
  • News:
    • Fed Chair Yellen said this morning that "in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."
      • Fed Vice Chair Stanley Fischer later said that Yellen's remarks were consistent with the possibility of a September rate hike. Fischer also said that the August jobs report (due out next Friday) would play a big role in the September FOMC decision
    • Fed Governor Powell said that the Fed should be patient with rate hikes but that the U.S. economy is on solid footing despite the growth slowdown in the first half of 2016. Powell went on to say that he believes in a gradual pace of rate hikes
    • U.S. Q2 GDP growth was revised down to a 1.1% seasonally adjusted annual rate in the second official estimate. The Briefing.com consensus was 1.1%
      • The GDP deflator's growth was revised up to a 2.3% SAAR from the preliminary estimate of 2.2%. The Briefing.com consensus was for 2.2%
      • Growth in real consumer spending was revised up to a 4.4% SAAR from the initial estimate of 4.2%
      • Gross domestic income grew at just 0.2% q/q in the second quarter
    • The U.S. deficit in international trade in goods fell to $59.3 bln in July from $64.5 bln in June
    • Cleveland Fed President Loretta Mester (FOMC voter) said this morning on CNBC said that she sees a gradual upward pace of interest rates. Every meeting is a "live meeting" for her. Commercial real estate is frothy in some parts of the country
    • Atlanta Fed President Dennis Lockhart (non-FOMC voter) said this morning that sluggish business spending is one of the major risks to a U.S. GDP growth rebound in the second half of 2016. He went on to say, "I can see two rate hikes as possible when I look at the calendar. We have three more meetings this year, so that's possible."
  • Commodities:
    • WTI crude: -0.08% to $47.29/bbl. 
    • Gold: -0.02% to $1,324.4/troy oz. 
    • Copper: +0.02% to $2.077/lb.
  • Currencies:
    • EUR/USD: -0.80% to 1.1195
    • USD/JPY: +1.22% to 11.80
  • Week Ahead:
    • Monday: July Personal Income and Spending (08:30 ET); July Core PCE Prices (08:30 ET)
    • Tuesday: June Case-Shiller 20-city Index (09:00 ET); August Consumer Confidence (10:00 ET)
    • Wednesday: Boston Fed President Rosengren (FOMC voter) (03:15 ET); MBA Mortgage Index for the week ending 8/27 (07:00 ET); Minneapolis Fed President Kashkari (non-FOMC voter) (08:00 ET); August ADP Employment Change (08:15 ET); August Chicago PMI (09:45 ET); July Pending Home Sales (10:00 ET); Crude Inventories for the week ending 8/27 (10:30 ET); Chicago Fed President Evans (non-FOMC voter) (15:15 ET)
    • Thursday: August Challenger Job Cuts (08:30 ET); Initial Jobless Claims for the week ending 8/27 and Continuing Jobless Claims for the week ending 8/20 (08:30 ET); Q2 Productivity (Revised) and Unit Labor Costs (Revised) (08:30 ET); July Construction Spending (10:00 ET); August ISM Index (10:00 ET); Natural Gas Inventories for the week ending 8/20 (10:30 ET); Cleveland Fed President Mester (FOMC voter) speaks on 'Community Development' (12:25 ET); August Auto and Truck Sales (14:00 ET)
    • Friday: August Employment Situation Report (08:30 ET); July Trade Balance (08:30 ET); July Factory Orders (10:00 ET); Richmond Fed President Lacker (non-FOMC voter) (13:00 ET)

2:32 pm - Dollar Jumps with Chance of September Rate Hike

  • The U.S. Dollar Index traded up 0.67% to 95.41 today, but that gain understates its 1.23% gain from the intraday low of 94.25. The dollar is moving higher as short-term interest rate markets price in a faster pace of Fed tightening following Fed Chair Yellen's speech in Jackson Hole this morning. She said, "I believe the case for an increase in the federal funds rate has strengthened in recent months." This statement was taken to show tacit approval of the more hawkish views expressed by other Fed leadership (New York Fed President Dudley and Fed Vice Chair Fischer) over the past two weeks. The dollar gained against all of the majors 
    • The probability of a rate hike at the September FOMC meeting is up to 36%, according to the CME website
  • EUR/USD: -0.67% to 1.1209
    • Germany's GfK Consumer Climate index unexpectedly edged higher to 10.2 for September from 10.0 for August
    • Spanish retail sales continued to grow at a blistering pace in July, up 4.9% y/y after 5.7% growth in June
    • Credit growth in the eurozone grew at 3.9% y/y in July, up from a 3.8% pace in June
  • GBP/USD: -0.38% to 1.3142
    • U.K. GDP growth was confirmed at 0.6% q/q in Q2, in line with estimates
    • The U.K.'s Index of Services gained 0.5% last month, beating expectations after a 0.3% rise in the prior month
  • USD/CHF: +0.92% to 0.9764
  • USD/JPY: +1.18% to 101.76
    • Japan's National Core Consumer Price Index fell 0.5% y/y in July, a continuation of June's rate and slightly lower than estimates
    • The Tokyo Core CPI fell 0.4% y/y in August, a sharper decline than expected. The index was down 0.4% y/y in July
  • USD/CNY: +0.20% to 6.671
  • USD/CAD: +0.57% to 1.2991
    • Canada's budget deficit widened to -CAD1.11 bln in June from -CAD0.59 bln in May
  • AUD/USD: -0.69% to 0.7572
  • NZD/USD: -0.84% to 0.7238

1:56 pm - 2-Year Yield Remains Volatile

  • The Treasury complex is broadly lower this afternoon although the 5-year Treasury is feeling the brunt of the selling. Given the economic data out since the last FOMC meeting, it should not be very surprising that Fed Chair Yellen appeared to tee up the next rate hike this morning in her speech in Jackson Hole. The pause at the July 26-27 meeting was arguably warranted on the basis of the June 23 Brexit vote in the U.K. and the weak May employment report (whose effect on policymakers should have already been mitigated by a blockbuster June report). After a very solid July jobs report as well as strong retail sales, industrial production, and durable goods orders growth, there is at least a case to be made that the Fed should hike in September. The leadership of the Fed appears to be coming around on this, judging by Dudley, Fischer, and Yellen's remarks over the past two weeks. The U.S. economy has navigated a series of shocks this year (oil/emerging market crisis in February and Brexit vote in June) and has so far held up rather well although GDP growth has been disappointing. A rebound to ~3% growth in the third quarter is expected
  • It's pretty hard to argue that the Fed is artificially holding down interest rates when one looks at the action in the yield curve this week. 10 and 30-year Treasuries have so far been rather unresponsive to moves higher in the 2-year yield. We expect that stubbornness to eventually crack when investors realize that Fed funds may never go to the 0-0.25% range again. Having said all that, it is still easy to make the case that the ECB, BoJ, and BoE are artificially suppressing yields on long-dated Treasuries
  • Yield Check:
    • 2-yr: +3 bps to 0.82%
    • 5-yr: +5 bps to 1.21%
    • 10-yr: +3 bps to 1.61%
    • 30-yr: +1 bp to 2.28%

1:03 pm - 2-Year Yield Hits 10-Week High

  • The Treasury complex has been falling sharply in late-morning/early-afternoon trade and the S&P 500 has been declining as equity markets fear higher interest rates (-0.13% to 2,169.6). WTI crude is up 0.23% to $47.44/bbl. and the U.S. Dollar Index is up 0.43% to 95.18, having touched its 21-day moving average of 95.29 earlier. Gold is up 0.38% to $1,329.6/troy oz.
  • The 2-year Treasury yield is at its highest level since June 6 as traders price in more Fed tightening. Fed Chair Yellen's speech this morning included this sentence: 
    • Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.
    • Those recent months include the U.K.'s vote to leave the European Union, trouble in the eurozone's banking sector, a sluggish recovery in business investment, weaker-than-expected PPI growth in July, and a bad miss on Q2 GDP growth. Our sense is that even tepid data that does not show marked deterioration in the U.S. recovery will warrant a rate hike for Yellen by year-end. With New York Fed President Dudley and Fed Vice Chair Fischer seemingly on board, that should make six FOMC voters (maybe adding Fed Governor Powell) in favor of a rate hike. September is another story, and would probably require very solid jobs data for August
  • Yield Check:
    • 2-yr: +3 bps to 0.82%
    • 5-yr: +4 bps to 1.20%
    • 10-yr: +2 bps to 1.60%
    • 30-yr: +1 bp to 2.26%

12:35 pm - Fed Raising Rate Hike Expectations: The Dollar Index has rallied above the 95 level as a busy day of Fed speakers takes its toll. Fed Chair Janet Yellen presented at the Jackson Hole Symposium at 10am ET. Ms. Yellen's comment that the case for a rate hike has strengthened has garnered plenty of headlines from the press, painting the comments as a hawkish Fed ready to hike. But a closer look at her comments suggests the Fed remains data dependent. About two hours after Ms. Yellen, the Fed's Stanley Fischer was interviewed on CNBC. He was asked if there was a possibility the Fed could raise in September and again later in the year. Mr. Fischer replied that the Fed Chair comments were consistent with that thought but again, highlighted that the Fed needs to see a steady improvement in economic data. These comments come ahead of next week which promises to be a busy one with the Jobs report (Fri), Personal Income & Spending, PCE Prices (Mon), and ISM Services (Wed).

  • The euro spiked to 1.1335 in initial reaction to the Yellen comments but has since rolled back to the 1.1220 area. The single currency is now holding the 100 sma for a key test. A read on German consumer confidence showed a slight month over month improvement, coming in line with expectations.
  • The pound has slipped back into the 1.31 area after being rejected at its 50-sma (1.3283). The test of the 50 came right after the Yellen comments but cable has revered 140 bps since the failed break out. There was no revision to the country's Q2 GDP as it stayed at +0.6% q/q.
  • The yen is sliding lower against the dollar as well. After failing to break above 100 we are seeing some yen bulls throw int he towel and head for the exit. Still, yen sits at 101.36 and the 100 level remains in play ahead of next week's economic data.

12:22 pm - Yield Curve Flattens, Stocks Reverse Lower

  • The pattern of this tightening cycle for the Fed has generally followed this pattern:  Fed talks seriously about hiking, markets sell off, Fed stops talking about hiking, markets rally. We will see how much markets respond to the current bout of chatter. Right now, the S&P 500 has reversed as much as 25 points from its 2,188.2 session high. The Japanese yen is selling off (USD/JPY: +0.86% to 101.45) and the yuan is weaker as well (USD/CNY: +0.24% to 6.673). The U.S. Dollar Index is up 0.56% to 95.30, having touched a low of 94.25 earlier in the morning
  • Fed fund futures are now showing a 30% probability of a September rate hike and 60% probability of one or more by year-end
  • Yield Check:
    • 2-yr: +3 bps to 0.83%
    • 5-yr: +3 bps to 1.19%
    • 10-yr: +1 bp to 1.58%
    • 30-yr: unch at 2.25%

11:46 am - Fed Vice Chair Speaks, Saying Little New

  • Treasuries are sharply reversing their morning rally and that is weighing on the S&P 500 (up 0.29% to 2,178.6) and also sending the U.S. Dollar Index higher (+0.35% to 95.10). WTI crude is up 0.40% to $47.52/bbl. 
  • Fed Vice Chair Fischer is doing an interview on CNBC at the moment. He said fairly little new since his remarks in recent weeks, noting that the August employment report will be important to the September FOMC rate decision
  • The New York Fed's GDP Nowcast for Q3 is down to 2.80% from 3.0%
  • Katie Martin from the FT quotes Barclays this morning saying, "We find Yellen's confidence in the economic outlook during her remarks at Jackson Hole consistent with a near-term rate hike"
  • Yield Check:
    • 2-yr: +1 bp to 0.81%
    • 5-yr: +1 bp to 1.18%
    • 10-yr: unch at 1.57%
    • 30-yr: -1 bp to 2.25%
  • 10-Year Yield (Daily): Having successfully tested yield support around 1.544 this morning, we think that there should be more follow-through to the upside in the 10-year yield. Revisiting the post-Yellen Treasury rally now seems unnecessary and we would view such a move as suspicious, ie. calling the bear case into serious question

11:04 am - Long Bond Leads Treasury Complex

  • The U.S. Treasury yield curve has flattened appreciably since Fed Chair Yellen's speech in Jackson Hole. The 2's/30's yield spread is now down four basis points today to +143 bps after Yellen said that the rate hike case has strengthened in recent months. +143 bps is the lowest level since 2008. The S&P 500 has trimmed its gain to 0.47% at 2,182.6 and WTI crude is up 0.91% to $47.76/bbl. The U.S. Dollar Index is down 0.05% to 94.72 in a volatile trade
  • Goldman's Jan Hatzius said that they have raised their probability for a September rate hike to 40% from 30%
  • Yield Check:
    • 2-yr: -1 bp to 0.79%
    • 5-yr: -2 bps to 1.14%
    • 10-yr: -3 bps to 1.54%
    • 30-yr: -4 bps to 2.22%
  • 30-Year Yield (Daily): For a more optimistic view of the Treasury market, we have the chart of the 30-year yield. It has found yield resistance at the 50-day moving average three times over the past month. We don't think this view is supported by fundamentals, but there it is

10:30 am - Treasuries Rally Back

  • The U.S. Treasury market reversed to trade sharply higher after taking losses in the immediate aftermath of Janet Yellen's speech
  • Yield Check:
    • 2-yr: -2 bps to 0.77%
    • 5-yr: -3 bps to 1.13%
    • 10-yr: -4 bps to 1.54%
    • 30-yr: -4 bps to 2.23%
  • 10-Year Yield (Daily): The 10-year yield is retesting broken downtrend as support at ~1.54%. Holding above that yield along with the 21-day moving average at 1.544% will be very important for the bears

10:03 am - Excerpts from Yellen Speech

  • U.S. Treasuries are trading lower after Fed Chair Janet Yellen's speech in Jackson Hole. The U.S. Dollar Index is now up 0.06% to 94.83 and WTI crude is up 0.32% to $47.48/bbl. The S&P 500 is up 0.32% to 2,179.3 and gold is up 0.22% to $1,327.5/troy oz.
  • U.S. economic activity continues to expand, led by solid growth in household spending. But business investment remains soft and subdued foreign demand and the appreciation of the dollar since mid-2014 continue to restrain exports. While economic growth has not been rapid, it has been sufficient to generate further improvement in the labor market. Smoothing through the monthly ups and downs, job gains averaged 190,000 per month over the past three months. Although the unemployment rate has remained fairly steady this year, near 5 percent, broader measures of labor utilization have improved. Inflation has continued to run below the FOMC's objective of 2 percent, reflecting in part the transitory effects of earlier declines in energy and import prices.
  • Looking ahead, the FOMC expects moderate growth in real gross domestic product (GDP), additional strengthening in the labor market, and inflation rising to 2 percent over the next few years. Based on this economic outlook, the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives. Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook.
  • And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course. Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy. In addition, the level of short-term interest rates consistent with the dual mandate varies over time in response to shifts in underlying economic conditions that are often evident only in hindsight. For these reasons, the range of reasonably likely outcomes for the federal funds rate is quite wide--a point illustrated by figure 1 in your handout. The line in the center is the median path for the federal funds rate based on the FOMC's Summary of Economic Projections in June.1 The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70 percent probability that the federal funds rate will be between 0 and 3-1/4 percent at the end of next year and between 0 and 4-1/2 percent at the end of 2018.2 The reason for the wide range is that the economy is frequently buffeted by shocks and thus rarely evolves as predicted. When shocks occur and the economic outlook changes, monetary policy needs to adjust. What we do know, however, is that we want a policy toolkit that will allow us to respond to a wide range of possible conditions.
  • Yield Check:
    • 2-yr: +1 bp to 0.80%
    • 5-yr: +2 bps to 1.18%
    • 10-yr: +1 bp to 1.59%
    • 30-yr: -1 bp to 2.25%

09:34 am - Yield Curve Flattens

  • U.S. Treasuries are trading slightly higher this morning but well off of their best levels as markets await Fed Chair Yellen's speech and digest the downward revision to U.S. Q2 GDP growth. The S&P 500 is trading up 0.28% to 2,178.4 after the open and WTI crude is up 0.06% to $47.36/bbl. The U.S. Dollar Index is down 0.18% to 94.60 and gold is up 0.70% to $1,333.9/troy oz.
  • Atlanta Fed President Dennis Lockhart (non-FOMC voter) said this morning that sluggish business spending is one of the major risks to a U.S. GDP growth rebound in the second half of 2016. He went on to say, "I can see two rate hikes as possible when I look at the calendar. We have three more meetings this year, so that's possible." 
  • Justin Wolfers, economics professor at the University of Michigan, notes this morning that gross domestic income (GDI) growth slowed to 0.2% in Q2 from 0.8% in Q1
  • The 2-year/30-year Treasury yield spread is at its narrowest since 2008 (+146 basis points)
  • Yield Check:
    • 2-yr: -1 bp to 0.78%
    • 5-yr: -1 bp to 1.15%
    • 10-yr: -1 bp to 1.56%
    • 30-yr: -2 bps to 2.24%

08:51 am - Consumption Gets Revised Up

  • U.S. Treasuries are trading higher this morning as all eyes turn to Fed Chair Janet Yellen's speech in Jackson Hole. Loretta Mester spoke this morning and confirmed that she would like to see a gradual path of rate hikes. She said that she thinks U.S. GDP growth could be 3% in the second half of this year. The S&P 500 is set to open up 0.08% to 2,174.4 and WTI crude is up 0.27% to $47.46/bbl. The U.S. Dollar Index is down 0.26% to 94.53 and gold is up 0.68% to $1,333.6/troy oz.
  • U.S. Q2 GDP growth was revised down to a 1.1% seasonally adjusted annual rate in the second official estimate. The Briefing.com consensus was 1.1%
    • The GDP deflator's growth was revised up to a 2.3% SAAR from the preliminary estimate of 2.2%. The Briefing.com consensus was for 2.2%
    • Growth in real consumer spending was revised up to a 4.4% SAAR from the initial estimate of 4.2%. Matthew Boesler of Bloomberg noted this morning that there were only five times in the last 25 years when we've seen such a great divergence between consumption and investment (Q1 '92, Q4 '99, Q4 '01, Q4 '06, Q1 '09)
  • The U.S. deficit in international trade in goods fell to $59.3 bln in July from $64.5 bln in June
  • Cleveland Fed President Loretta Mester (FOMC voter) said this morning on CNBC said that she sees a gradual upward pace of interest rates. Every meeting is a "live meeting" for her. Commercial real estate is frothy in some parts of the country. She is generally hawkish and we have her second to Kansas City Fed President George as the FOMC voter most likely to favor a rate hike
  • Yield Check:
    • 2-yr: -2 bps to 0.78%
    • 5-yr: -2 bps to 1.14%
    • 10-yr: -2 bps to 1.56%
    • 30-yr: -3 bps to 2.24%

08:26 am - Core/Periphery Spreads Widen

  • European sovereign yields are mixed this morning with investors showing a bias for higher-quality debt. Markets around the worlds are closely watching Fed Chair Yellen's 10:00 ET speech this morning just in case she says something decisive about the September FOMC meeting. The eurozone economic data today was solid, with Germany's Gfk Consumer Climate index showing optimism about September and credit growth in the euro area continuing. Portugal's 10-year yield moved as high as 3.02%, testing its 50-day moving average, while neighboring Spain's 10-year yield matched an all-time low of 0.91%
  • The head of the Swedish National Debt Office told Bloomberg on Thursday that the Riksbank may be reaching the limits of its asset purchase program. The European Central Bank had used the experience of negative-interest rate pioneers like the Riksbank as an example of how NIRP could be successful, so this is worth noting. The situation in Sweden is, however, quite different than that of the euro area
  • Economic Data:
    • Germany's GfK Consumer Climate index unexpectedly edged higher to 10.2 for September from 10.0 for August
    • Spanish retail sales continued to grow at a blistering pace in July, up 4.9% y/y after 5.7% growth in June
    • Credit growth in the eurozone grew at 3.9% y/y in July, up from a 3.8% pace in June
  • Yield Check:
    • France, 10-yr OAT: -1 bp to 0.16%
    • Germany, 10-yr Bund: -1 bp to -0.08%
    • Greece, 10-yr note: -2 bps to 7.96%
    • Italy, 10-yr BTP: unch at 1.13%
    • Portugal, 10-yr PGB: +4 bps to 3.00%
    • Spain, 10-yr ODE: +2 bps to 0.93%
    • U.K., 10-yr Gilt: -2 bps to 0.56%

07:23 am - Treasuries Unchanged Overnight

  • U.S. Treasuries are near their unchanged marks this morning ahead of Fed Chair Yellen's speech (10:00 ET) and the second official estimate of U.S. Q2 GDP growth (08:30 ET). The economic data from the eurozone was slightly better than expected with Germany's GfK Consumer Climate gauge improving for September and Spanish retail sales continuing June's robust growth in July. St. Louis Fed President Bullard (FOMC voter) said moments ago that the Fed "could" hike rates in 2016 but he did not sound very confident. Bullard is now on the dovish wing of the FOMC and is unlikely to be a deciding vote. The S&P 500 is set to open up 0.08% to 2,174.4 and WTI crude is down 0.36% to $47.16/bbl. The U.S. Dollar Index is down 0.13% to 94.65 and gold is up 0.47% to $1,330.8/troy oz.
  • Yield Check:
    • 2-yr: unch at 0.80%
    • 5-yr: unch at 1.16%
    • 10-yr: -1 bp to 1.57%
    • 30-yr: -1 bp to 2.25%
  • International News:
    • Japan's National Core Consumer Price Index fell 0.5% y/y in July, a continuation of June's rate and slightly lower than estimates
      • The headline National CPI fell 0.4% y/y, in line with expectations and June's pace
      • The Tokyo Core CPI fell 0.4% y/y in August, a sharper decline than expected. The index was down 0.4% y/y in July
    • Germany's GfK Consumer Climate index unexpectedly edged higher to 10.2 for September from 10.0 for August
    • French GDP growth was confirmed at 0.0% quarter-over-quarter for Q2 , in line with expectations
    • U.K. GDP growth was confirmed at 0.6% q/q in Q2, in line with estimates
      • The U.K.'s Index of Services gained 0.5% last month, beating expectations after a 0.3% rise in the prior month
    • Spanish retail sales continued to grow at a blistering pace in July, up 4.9% y/y after 5.7% growth in June
    • Credit growth in the eurozone grew at 3.9% y/y in July, up from a 3.8% pace in June
  • Data out Friday:
    • Q2 GDP and GDP Deflator -- Second Estimate (08:30 ET)
    • July International Trade in Goods (08:30 ET)
    • August Michigan Sentiment -- Final (10:00 ET)
  • Fed Speakers:
    • Fed Chair Yellen - FOMC voter (10:00 ET)

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