Bond Market Update from Briefing.com

Briefing.com

11:50 am -

Treasury Auction Preview

  • $28 bln 7-year Treasury auction (results at 13:00 ET)
    • Prior auction results:
      • High yield: 1.63%
      • Bid-to-cover: 2.65
      • Indirect bid: 65.5%
      • Direct bid: 14.2%
    • Average results of prior 12 auctions:
      • High yield: 1.900%
      • Bid-to-cover: 2.45
      • Indirect bid: 55.5%
      • Direct bid: 12.9%
      • 11:09 am -

        Treasuries Move Higher

        • U.S. Treasuries are trading near highs this morning following some conflicting reports about the state of the U.S. economy. Core capital goods orders fell 0.8% m/m in April, more than offsetting a 0.7% upward revision to March's change, perhaps reflecting continuing sluggish business investment. On the other hand, pending home sales jumped to a 10-year high and initial jobless claims fell by 10K filers to 268K last week. The S&P 500 now trades down 0.12% to 2,087.8 and the U.S. Dollar Index is 0.16% lower at 95.20. WTI crude is down 0.52% to $49.30/bbl. Still on deck today are public remarks by Fed Governor Powell and the $28 bln 7-year Treasury auction. 
        • Via The Big Picture blog, Deutsche Bank's Torsten Slok notes that Q1 U.S. GDP growth has averaged 0.7% q/q over the past six years vs. 3.1% q/q for Q2. Q3 and Q4 averages were 2.2 and 2.4%, respectively. Clearly, there is "residual seasonality," as St. Louis Fed President James Bullard has noted for several weeks
        • Yield Check:
          • 2-yr: -4 bps to 0.89%
          • 5-yr: -4 bps to 1.37%
          • 10-yr: -3 bps to 1.84%
          • 30-yr: -3 bps to 2.64%

          10:22 am -

          Treasuries Sport Strong Gains

          • U.S. Treasuries remain in the green this morning despite a surprising 5.1% surge in pending home sales. The National Association of Realtors' index climbed to 116.3 in April, the best level since February of 2006. The West had the best performance of any region since 2001, jumping 11.4%
          • The S&P 500 is down 0.03% to 2,089.9 and WTI crude is up 0.36% to $49.74/bbl. The U.S. Dollar Index is down 0.25% to 95.12, up from its session-low of 94.94
          • Bloomberg's Consumer Comfort index fell to 42 last week from the prior reading 42.6. 42 is the low for 2016
            • Personal finances fell 1.2 points to 55.3, the lowest since January
            • State of the economy fell 0.7 points to 32.4
          • The Atlanta Fed's GDPNow forecast for U.S. growth in Q2 is at 2.9%, up from 2.5% on May 17. According the Atlanta Fed's website, Wednesday's report on international trade in goods added 0.2 percentage points to the estimate
          • Yield Check:
            • 2-yr: -4 bps to 0.89%
            • 5-yr: -3 bps to 1.38%
            • 10-yr: -2 bps to 1..85%
            • 30-yr: -3 bps to 2.64%
            • 9:47 am -

              Treasuries Rise as Dollar Pulls Back

              • Treasuries are mustering moderate gains this morning after core durable goods orders missed expectations for April. The S&P has opened to trade up 0.04% to 2,091.4 and wtI crude is adding 0.48% to $49.80/bbl. The economic data out this morning was a bit concerning as the headline beat for durable goods orders was driven by jumps in defense and commercial aircraft orders. Core durable goods orders fell 0.8% m/m, missing expectations for a small gain. On the other hand, new home sales soared past expectations in April (according to data out Wednesday) and the initial claims data show no cause for concern. For a week or two in the beginning of this month, the employment situation was looking a bit tenuous. The ADP employment change and the Labor Department's change in nonfarm payrolls both missed estimates while weekly initial jobless claims climbed from 257K to 294K over a two-week period. The data out this morning show that we are down to 268K for initial claims, better than the best level of the 2003-2007 expansion. The CME website shows just a 57% chance of a rate hike by the end of the July FOMC meeting. With financial conditions continuing to ease and the economic data chugging along, it is going to take a serious turn of events for the FOMC not to hike in June or July
              • The U.S. Dollar Index is down 0.34% to 95.03 and gold is up 0.19% to $1,226.1/troy oz.
              • Yield Check:
                • 2-yr: -4 bps to 0.89%
                • 5-yr: -3 bps to 1.38%
                • 10-yr: -2 bps to 1.85%
                • 30-yr: -2 bps to 2.65%

                8:50 am -

                Headline Durable Goods Beats, Core Misses

                • U.S. Treasuries are trading higher this morning in a curve-steepening trade as investors look past the headlines of the Durable Goods Orders report to note that demand for capital goods is ebbing. The S&P 500 is indicated to open up 0.05% to 2,091.6 and WTI crude is up 1.09% to $50.10/bbl. The U.S. Dollar Index down 0.11% to 95.25 and gold is up 0.34% to $1,227.9/troy oz.
                • U.S. durable goods orders grew by 3.4% m/m in April, far ahead of the Briefing.com consensus of 0.6%. March's growth was revised up to 1.9% from 0.8%
                  • Durable goods orders excluding transportation grew 0.4% m/m, short of the Briefing.com consensus of 0.5%. March's number was revised up to 0.1% from -0.2%
                  • Core durable goods orders fell 0.8% m/m, badly missing expectations for a gain. Core orders are down 4.1% from their level in 2015
                  • The jump in the headline number was driven by orders for commercial aircraft, which grew by 65%
                • Initial jobless claims fell to 268K for the week ending May 21, beating the Briefing.com consensus of 275K. The prior week's reading was 278K
                  • Continuing jobless claims rose by 11K to 2163K for the week ending May 14 
                  • Yield Check:
                    • 2-yr: -4 bps to 0.88%
                    • 5-yr: -3 bps to 1.38%
                    • 10-yr: -1 bp to 1.86%
                    • 30-yr: -1 bp to 2.66%
                    • 10-Year Yield (Hourly):
                    • View photo

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                      8:28 am -

                      Borrowing Costs Edge Higher

                      • European sovereign yields are moving higher this morning in a session light on economic data. European equity indices are now trading at three-week highs. EUR/USD fell 490 pips from May 3 through Wednesday but has seen something of a relief rally this morning
                      • Hopes for stability in Greece have again been threatened by the IMF, which is now insisting on debt sustainability for the crisis-stricken country. Debt sustainability would likely require some debt forgiveness for Greece because its debt/GDP ratio is around 1.7
                      • Italy sold EUR2.5 bln of 2-year CTZs at an average yield of -0.137% with a bid-to-cover ratio of 1.61
                      • European Economic Data:
                        • U.K. GDP growth was confirmed at 0.4% q/q for Q1 2016, a slower pace than the 0.6% reading for Q4 2016
                          • Weakness in industrial production and construction were behind the deceleration. Analysts cautioned that not all of the slowdown can be attributed to Brexit uncertainty. According to them, slowing job growth is leading to slower spending growth
                          • Business investment fell 0.5% q/q in the first quarter after falling 2.0% q/q in Q4 2015
                          • BBA Mortgage Approvals unexpectedly fell to 40.1K in April from 43.9K in March
                        • Spanish GDP growth was confirmed at 0.8% q/q (3.4% y/y) for Q1 of 2016
                        • Italian wage inflation ran at 0.6% y/y in April, down from March's growth rate of 0.8% y/y
                          • Italian retail sales fell 0.6% m/m in March, much worse than expected after 0.3% m/m growth in February
                          • Industrial orders in Switzerland fell 2.2% in Q1 after plunging 7.4% in Q4 2015
                          • Yield Check:
                            • France, 10-yr OAT: +3 bps to 0.50%
                            • Germany, 10-yr Bund: +1 bp to 0.17%
                            • Greece, 10-yr note: +10 bps to 7.19%
                            • Italy, 10-yr BTP: +2 bps to 1.37%
                            • Portugal, 10-yr PGB: +4 bps to 2.99%
                            • Spain, 10-yr ODE: +3 bps to 1.50%
                            • U.K., 10-yr Gilt: -1 bp to 1.45%
                            • 7:41 am -

                              Treasuries Set to Open Higher

                              • U.S. Treasuries are edging higher this morning ahead of the busiest day for scheduled events this week. Data out of Europe overnight confirmed U.K. and Spanish GDP growth in line with preliminary estimates. Some discord between the IMF and Greece's official European creditors is causing a bump up in the country's sovereign borrowing costs.   The S&P 500 is set to open up smidgen at 2,091.6 and WTI crude for July delivery flirts with $50/bbl, now up 0.71% to $49.91/bbl. The U.S. Dollar Index is down 0.10% to 95.26 and gold is up 0.38% to $1,228.5/troy oz. While the economic data and 7-year Treasury auction on tap today are significant, Fed Governor Powell is also on the docket. The Board of Governors, who make less frequent public remarks, is where the real dovishness on the FOMC lies, so indications from him that he is ready to hike in June would be important
                              • Yield Check:
                                • 2-yr: -2 bps to 0.91%
                                • 5-yr: -2 bps to 1.39%
                                • 10-yr: -1 bp to 1.86%
                                • 30-yr: -1 bp to 2.66%
                                • International News:
                                  • St. Louis Fed President James Bullard said this morning in Singapore that the U.S. is at or beyond full employment "by nearly any metric"
                                    • Bullard, a moderate hawk who votes on the FOMC this year, went on to say that "the FOMC has laid out, via the SEP, a data-dependent slow normalization. Market-based forecasts of FOMC policy, in contrast, envision almost no normalization"
                                  • In Japan, Reuters Tankan Index fell to 2 in May from 10 in April
                                    • The Corporate Services Price Index grew 0.2% y/y in April, in line with expectations and the prior reading
                                    • U.K. GDP growth was confirmed at 0.4% q/q for Q1 2016, a slower pace than the 0.6% reading for Q4 2016
                                      • Weakness in industrial production and construction were behind the deceleration. Analysts cautioned that not all of the slowdown can be attributed to Brexit uncertainty. According to them, slowing job growth is leading to slower spending growth
                                      • Business investment fell 0.5% q/q in the first quarter after falling 2.0% q/q in Q4 2015
                                      • Spanish GDP growth was confirmed at 0.8% q/q (3.4% y/y) for Q1 of 2016
                                      • Italian wage inflation ran at 0.6% y/y in April, down from March's growth rate of 0.8% y/y
                                      • Industrial orders in Switzerland fell 2.2% in Q1 after plunging 7.4% in Q4 2015
                                      • Ukraine's central bank cut its main policy rate by 100 basis points to 18% after a 300-basis point cut in April. Ebbing imported price inflation as the depreciation of the hryvnia fades into the past is giving the central bank room to ease
                                        • Data out Today:
                                          • Initial Jobless Claims for the week ending 5/14 and Continuing Jobless Claims for the week ending 5/21 (08:30 ET)
                                          • April Durable Goods Orders and Durable Goods Orders ex-transportation (08:30 ET)
                                          • April Pending Home Sales (10:00 ET)\
                                          • Natural Gas Inventories for the week ending 5/21 (10:30 ET)
                                        • Fed Speakers:
                                          • St. Louis Fed President Bullard (FOMC voter) (05:15 ET)
                                          • Fed Governor Powell (FOMC voter) (12:15 ET)
                                          • Treasury Auction:
                                            • $28 bln 7-year Treasury auction (results at 13:00 ET)
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