Bond Market Update from Briefing.com

Briefing.com

2:00 pm - The Week in Review

  • Treasuries gained every day this week, running their winning streak to six and pushing yields to one-month lows
  • Record low yields across Europe provided support, causing money to move into the higher yielding U.S. Treasuries.
  • Economic data was dismal as only GDP - Second Estimate (3.9% actual v. 3.2% expected) was the only notable data point of the week to outpace estimates. 
  • Consumer confidence (88.7 actual v. 96.0 expected), durable orders- ex transportation (-0.9% actual v. +0.5% expected), Chicago PMI (60.8 actual v. 63.0 expected), and new home sales (458K actual v. 470K expected) were among the notable misses. 
  • This week's auctions were mostly impressive.   
  • Monday's $28B 2Y note auction was strong. The auction drew 0.542% (WI 0.554%) and a strong 3.71x bid/cover. Indirect (35.8%) bids provided support as directs (16.2%) missed their 12-auction averages. 
  • Tuesday's $35B 5Y note auction was the best of the week. The auction drew 1.595% (WI 1.612%) and a superb 2.91x bid/cover. Indirect (65.0%) bids posted their best showing in 10 years while directs (9.9%) were a bit light. Primary dealers ended up with just 25.1% of the supply. 
  • Wednesday's 7Y note auction was in-line. The auction drew 1.960% (1.955%) and a 2.63x bid/cover. Indirect bidders (50.0%) provided support as directs (12.8%) were a bit light. Primary dealers were left with 37.2% of the supply. 
  • Up front, the 2Y slipped -3bp to 0.473%. The yield finished at its lowest levels of November, and is probing the lower end of the 0.500%/0.550% range that has been in place over the past month. 
  • In the belly, the 5Y shed -12bps to 1.492%. Action ended Friday's session at a one-month low and on minor support. 
  • The 10Y tumbled -15bps to 2.172%. The benchmark yield settled near its 50% retracement of the move off the October 15 lows. 
  • Buying at the long end dropped the 30Y -14bps to 2.893%. The yield on the long bond closed the week at its lowest level since October 15.
  • A flatter curve developed over the course of the week with the 2-10-yr spread tightening to 170bps.
The Week Ahead
  • Monday's data is limited to ISM Index (10). NY's Dudley speaks at Baruch College (12:15) and Fed Vice Chair Stanley Fischer takes part in a panel about the "100th Anniversary of the Federal Reserve" (13). 
  • Tuesday will see construction spending (10) and auto/truck sales (14). Fed Vice Chair Stanley Fischer sits on a panel at the 2014 Wall Street CEO Council Annual Meeting (8:10). Fed Chair Janet Yellen makes opening remarks at the 2014 College Fed Challenge National Finals (8:30). Fed Governor Brainard opens the Economic Growth and Regulatory Paperwork Reduction Act Outreach Meeting (12). NY's Dudley appears at Lehman College (15:30).
  • Data picks up on Wednesday as MBA Mortgage Index (7), ADP Employment Change (8:15), productivity-rev., unit labor costs-rev. (8:30), ISM Services (10), and the Fed's Beige Book (14) are due out. Philly's Plosser gives his economic outlook (12:30). Fed Governor Brainard discusses "Financial Stability: a Conversation with Lael Brainard" (14). Dallas' Fisher talks on the economy and monetary policy (19:30). 
  • Thursday's data includes Challenger Job Cuts (7:30) and initial and continuing claims (8:30). Cleveland's Mester makes opening remarks at the 2014 Financial Stability Conference (8:30). Fed Governor Brainard duplicates his speech from the previous day (13:15). 
  • Friday's data is the most anticipated of the week as nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, trade balance (8:30), factory orders (10), and consumer credit (15) are released.

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9:47 am - Treasuries Fight for Sixth Straight Gain:

  • Treasuries remain on track to post a sixth straight day of gains. 
  • Some light selling has taken hold since the start of U.S. trade; however, participation remains lackluster as many traders are out for Black Friday.
  • The early bid has yields across the curve lower by close to -2bps. 
  • The 10Y paces the decline, -2.5bps @ 2.209%. The benchmark yield is looking at its lowest close since October 21. 
  • A flatter curve remains in play as the 2-10-yr spread trades 171bps. 
  • Precious metals are on their lows with gold -$21 @ $1177 and silver -$0.78 @ $15.82.

7:09 am - Yen Nears Seven-Year Lows:

  • The Dollar Index has slipped off its best levels of the day, and is fighting to hold the 88.00 level. 
  • EURUSD is +10 pips @ 1.2475 as action presses the highs. The single currency holds small gains following today's mixed data. German retail sales (1.9% MoM actual v. 1.7% MoM expected) topped estimates while French consumer spending (-0.9% MoM actual v. 0.2% MoM expected) missed. CPI Flash Estimate posted an in-line 0.3% YoY. Action remains stuck in the 1.2400/1.2600 range that has been in place for the past month. 
  • GBPUSD is -40 pips @ 1.5695 as trade slides for a second day. Sterling has seen some selling pressure develop after Nationwide Home Price Index (0.3% MoM actual v. 0.4% MoM expected) was the latest reading to fall short of estimates. The 1.5600 level remains under close watch. 
  • USDCHF is -10 pips @ .9630 as trade piggybacks the euro. The pair has seen little response to KOF Economic Barometer diving to 98.7 (100.1 expected, 99.5 previous), its worst since July. 
  • USDJPY is +55 pips @ 118.25 as trade contends with its best finish in seven years. Data out of Japan was mostly positive as household spending (-4.0% YoY actual v. -4.8% YoY expected) and preliminary industrial production (0.2% MoM actual v. -0.4% MoM expected) beat while retail sales (1.4% YoY actual v. 1.5% YoY expected) missed. Traders are taking note of Tokyo Core CPI, which posted a hotter than anticipated 2.4% YoY (2.3% YoY expected). Any close above 118.26 will be the best in seven years. 
  • AUDUSD is -25 pips @ .8515 as action flirts with fresh 52-month lows. Early selling probed .8500 for the second time in three days, but so far the level been able to hold. The .8400 area is setting up as key support. USDCNY ticked up to 6.1447. 
  • USDCAD is +60 pips @ 1.1390 as trade sees a second day of solid gains. The recent highs near 1.1450 will be watched into today's GDP and RMPI reports.

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6:47 am - 10Y Hits 2.20%:

  • Treasuries are bid for the sixth straight session. 
  • The overnight advance has pushed yields across most of the curve to their lowest levels in a month
  • A quiet overnight session saw yields stuck in an extremely tight 1bp range. 
  • Up front, the 2Y is -0.8bps @ 0.508%. Action remains trapped between 0.500%/0.550% as it has since the beginning of November. 
  • In the belly, the 5Y is -26bps @ 1.26%. Traders are monitoring minor support in the 1.500% area as a breakdown sets up for a potential move into 1.400%.
  • The 10Y trades -3.4bps @ 2.200%. The benchmark yield is on track for its lowest close since October 20.
  • Outperformance at the long end has the 30Y -3.2bps @ 2.908%. The yield on the long bond is staring at its lowest close since October 15, the day of the 100-year flood. 
  • Curve flattening continues with the 2-10-yr spread tighter @ 169bps.
  • Precious metals are under pressure with gold -$14 @ $1183 and silver -$0.50 @ $16.11. 
  • Data: None. The U.S. Treasury market will close at 2pm ET.

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