Bond Market Update from

2:51 pm - The Week in Review: Treasuries Endure Heavy Selling

  • Treasuries endured heavy selling this week.
  • Most of the week's losses came on Thursday as a de-escalation in Ukraine and better than expected data sparked a sharp sell off.
  • EU, Russian, U.S., and Ukrainian officials drafted a framework calling for the "immediate start of a nationwide dialogue within the framework of the constitutional process" that "must be resolved by the Ukrainians themselves concerning an end to the conflict."   
  • On Friday, initial (304K actual v. 312K expected) and continuing (2739K actual v. 2800K expected) claims both topped forecasts while the Philly Fed (16.6 actual v. 8.6 expected) nearly double estimates. 
  • Data over the rest of the week was mixed as capacity utilization (79.2% actual v. 78.8% expected), industrial production (0.7% actual v. 0.5% expected), and retail sales (1.1% actual v. 1.0% expected) topped estimates while business inventories (0.4% actual v. 0.6% expected), Empire Manufacturing (1.3 actual v. 7.5 expected), housing starts (910K actual v. 955K expected) and building permits (990K actual v. 1003K expected) missed.
  • The latest Fed Beige Book suggested 'economic activity increased in most regions of the country since the previous report' while Fed Chair Janet Yellen indicated the central bank remains committed to an accommodative policy and that there is greater chance inflation runs below the Fed's target.
  • This week's selling had the biggest impact on the belly as the 5y surged +17bps to 1.731%. The heavy selling ran the 5y through 1.700% resistance, causing the yield to close at its highest level since April 3. Many traders will be watching the 1.800% area closely as it corresponds with the September and April highs. 
  • The 10y rallied +11bps to 2.721%. Selling on Friday was responsible for more than +8bps, and ran action back above the 2.680% pivot. Resistance near 2.725% is defended by the 200 dma. 
  • The wings of the curve outperformed as  the 2y added +4bps to 0.399% and the 30y tacked on +5bps to 3.517%.
  • The 30y gained +5bps on the week with selling on Friday responsible for a +6bp advance. The yield on the long bond spent the entire week below the key 3.550% level, and pressed to its lowest close since June. What was previously 3.550% support will now serve as resistance, and the inability to retake that level puts 3.150% in the cross hairs. 
  • A flatter yield curve developed as the 5-30-yr spread narrowed to 178.5bps, a level last seen in the fall of 2009.
The Week Ahead
  • Monday's data is limited to leading indicators (10).
  • Tuesday will see the FHFA Housing Price Index (9) and existing home sales (10). Treasury will auction $32 bln 2y notes
  • Wednesday's data includes the weekly MBA Mortgage Index (7) and new home sales (10). Treasury will hold a $35 bln 5y note auction
  • Data picks up a tad on Thursday with initial and continuing claims and durable orders (8:30). Treasury will auction $29 bln 7y notes.
  • Data concludes for the week on Friday with Michigan Sentiment - Final (9:55).

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1:54 pm - Dollar Erases Losses, Trades Flat:

  • The Dollar Index has recovered its early losses and now holds little changed near 79.80.
  • Aiding the greenback were reports of a de-escalation in Ukraine
  • EURUSD is flat @ 1.3815 after trade was once again rejected by minor resistance in the 1.3850 level. The afternoon weakness has the single currency looking at a third straight flat session as action remains trapped between 1.3800 support and 1.3850 resistance. Markets across the region will be closed Friday and Monday for Good Friday/Easter. 
  • GBPUSD is flat @ 1.6795 as action presses its worst levels of the session. Early strength lifted sterling to nearly 1.6850, its best since November 2009, but action has struggled to hold onto those gains ahead of the holiday. Minor support rests near 1.6725 while 1.6600/1.6650 provides further help. British markets are closed on Friday and Monday. 
  • USDHCF is +5 pips @ .8820 as buyers look to remain in control for a fourth day. The current streak has action testing resistance helped by the 50 dma. Swiss banks will be shuttered Friday and Monday. 
  • USDJPY is +20 pips @ 102.40 as action probes the 50 dma. Today's advance comes despite further commentary from Bank of Japan Governor Kuroda, which reiterated the economy is strengthening and inflation is likely to pick up as wages grow. The pair has not lost ground in six sessions and is on track to close at its best level in one and a half weeks. Japan's tertiary industry activity is due out this evening. 
  • AUDUSD is -40 pips @ .9330 as trade looks likely to post its lowest close since April 7. Today's selling comes following Australia's disappointing NAB Business Confidence and new motor vehicle sales, and the slowdown in the pace of acceleration of China's foreign direct investment. A more than 700 pip rally off the January lows has run the hard currency to five-month highs, but action has struggled to push through the .9400/.9450 level. Australian banks are closed on Friday and Monday. 
  • USDCAD is -15 pips @ 1.1000 as trade stalls at resistance in the area. The pair has struggled since this morning's hotter than anticipated headline CPI (0.6% MoM actual v. 0.4% MoM expected).

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12:38 pm - Afternoon Update: 2y -01/32 @ 99 30/32...3y -04/32 @ 99 28/32...5y -12/32 @ 99 15/32...7y -19/32 @ 99 21/32...10y -24/32 @ 100 08/32...30y -1 03/32 @ 102 06/32...EURUSD unch @ 1.3815...GBPUSD -5 pips @ 1.6790...USDJPY +10 pips @ 102.30...USDCHF +5 pips @ .8820...AUDUSD -45 pips @ .9325...USDCAD -10 pips @ 1.1005 

11:51 am - Treasuries Press the Lows:

  • Treasuries linger near the lows as steady selling persists into the lunch hour. 
  • Better than expected claims data and the Philly Fed beat have yields higher by as much as +5bps in the belly. 
  • The 5y is +5bps @ 1.705% as action probes resistance guarding the April highs. 
  • A +4.2bp advance has the 10y testing the 2.680% pivot. The benchmark yield has closed below the key level in each of the past five sessions. 
  • At the long end, the 30y continues to its outperformance, +2.3bps @ 3.477%. A retest of what was previously support in the 3.550% area cannot be ruled out, but the yield is likely to continue moving lower in the weeks ahead. 
  • Flattening persists along the curve as the 5-30-yr spread tightens to 177bps
  • The U.S. Treasury market will close at 2pm ET in observance of Good Friday.

11:23 am - Sterling at Highest Level Since 2009: The Dollar Index has traded in a tight range for the majority of the week. The DXY has stabilized from its recent decline to cut a path in the 79.50-79.80 area. Economic data this morning was positive as initial claims were lower than expected and the Philadelphia Fed posted a strong beat against expectations. However, volume remains light as markets prepare for a three-day holiday weekend. 

  • The euro continues to hold the 1.3800 level despite EU and ECB officials attempts at verbal intervention. The euro ignored a weak German PPI number to stretch to 1.3863, but it has since given up some of those gains. Europe is also seeing lighter volume as it prepares for the holiday weekend. 
  • Sterling has hit a fresh multi-year high as it reached 1.6842, its best level since November of 2009. Sterling has been bid all week following a better than expected jobs report.
  • The yen attempted to break above 102.00 overnight, but ran into resistance at 101.86 and has since fallen back to the 102.20 area. The move comes as markets see a return to risk as earnings reports in the U.S. and E.U. are coming in better than expected. The trading volume does remain light, which has participants cautious about the recent market trends.

10:07 am - Treasuries Retest Session Lows as Philly Fed Beats:

  • Treasuries are sliding back onto session lows following the strong Philly Fed (16.6 actual v. 8.6 expected) print.
  • Selling continues to weight heaviest on the belly as the 5y trades +4.5bps @ 1.700%. Traders will continue to watch this area closely as resistance in the 1.660%/1.700% area guards the early-April highs. 
  • A +2.5bp advance has the 10y above 2.660%. The benchmark yield is ticking higher for the third time in four days, and is nearing a test of the 2.680% pivot. 
  • Outperformance at the long end has the 30y flat @ 3.545%. 
  • Curve flattening persists as the 5-30-yr spread trades tighter @ 175.5bps. 
  • Precious metals are in the red with gold -$5 @ $1299 and silver -$0.05 @ $19.58.

8:35 am - Data Reaction:

  • Treasuries press to their worst levels of the session following the better than expected initial (304K actual v. 312K expected) and continuing (2739K actual v. 2800K expected) claims data
  • Selling has yields up +2bps across most of the curve with the 10y testing the 2.660% level.
  • Slight outperformance at the long end has the 30y +1bp @ 3.464%. 
  • A flatter curve has developed with the 5-30-yr spread tighter @ 179bps
  • A mixed session for precious metals has gold -$1 @ $1302 and silver +$0.02 @ $19.66. 
  • Philly Fed is due out at 10am ET.

7:14 am - Dollar Sees Early Selling:

  • The Dollar Index trades modestly lower as action presses the 79.65 level.
  • Traders will continue to monitor key support in the 79.00/79.40 area, which has held up since early 2012. 
  • EURUSD is +35 pips @ 1.3850 as a bid has developed despite the cooler than anticipated German PPI (-0.3% MoM actual v. 0.1% MoM expected). Minor resistance in the area has acted as a headwind the past couple of sessions as it guards the recent highs near 1.390/1.3950. 
  • GBPUSD is +15 pips @ 1.6810 as trade holds at its best levels since November 2009. The early bid has sterling on track for a third day of gains as buyers remain in control amid expectations the Bank of England will be the first major Western central bank to hike rates and emerge from the financial crisis. 
  • USDCHF is -35 pips @ .8785 as selling takes hold following three days of gains. Minor support near .8760 will be watched closely as a breakdown puts the March lows near .8725 in jeopardy. 
  • USDJPY is -10 pips @ 102.10 as trade slips off the 50 dma. Overnight, Bank of Japan Governor Kuroda spoke in Tokyo, reiterated the economy is improving and that prices will rise as wage growth picks up. The 101.50 area provides key support. 
  • AUDUSD is -25 pips @ .9345 as sellers have taken control following the disappointing NAB Business Confidence (6 actual v. 8 previous) and new motor vehicle sales (-0.3% MoM). The overnight weakness has trade probing minor support in the .9350 area with a breakdown likely putting pressure on .9250/.9275. USDCNY was little changed @ 6.2194.
  • USDCAD is flat @ 1.1015. The pair has gained in four of the past five sessions, which has action testing resistance in the area. Canada's CPI will be released later this morning.

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6:55 am - Treasuries Hold Little Changed:

  • Treasuries hold little changed ahead of the cash open. 
  • Overnight action was limited to a 3bp range across the curve. 
  • Outperformance in the belly has the 5y -1.9bps @ 1.636%. Early action saw a test of 1.660%/1.700% resistance, but was unable to break through the level.
  • The 10y trades -0.8bps @ 2.629%. Focus remains on the 2.600% level, which has held up since the beginning of February. 
  • At the long end, the 30y hovers -0.5bps @ 3.449%. Yesterday's close marked the lowest since June. 
  • A slightly steeper curve has developed as the 5-30-yr spread trades 181.5bps
  • Precious metals trade in the red with gold -$5 @ $1298 and silver -$0.04 @ $19.59. 
  • Data: Initial and continuing claims (8:30), and Philly Fed (10).
  • The U.S. Treasury market will close for the week at 2pm ET in observance of Good Friday.

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