The Day Ahead: Busy Day of Economic Data as Bond Markets Start Out Weaker

Treasuries were weaker again in the overnight session, again in huge volume, and by a sizable amount.  Selling was more pronounced in the Asian session, with some moderation coming during European hours.  Looking at the overnight events in Europe (positive talk from the ECB and much better than recent Spanish debt auctions), and considering that Treasury yields mostly corrected lower from their 2.35 highs during the Asian session, one get the sense that ongoing weakness is all about "the snowball."  In short, when you hear something about "losses extending," this is a good example.  The overnight data didn't really matter.  

There's quite a bit of domestic data this morning that might attempt to change this dynamic of Snowball>Econ, but we'll see how that goes.  We often refer to markets "digesting" economic data, and indeed, it's difficult to digest much of anything when you've been gutted.  Here's what's on tap

830am - Jobless Claims - With us as always... Seen at 359k vs 362k previously

830am - Producer Price Index - Seen +0.5 vs +0.1 Previously.  Excluding Food/Energy, seen FALLING from 0.4 to 0.2....  Gas prices...  This is KNOWN.  News media loves to tout the inflation reports as big market movers.  We think that's a bit overdone, but wouldn't rule out some market reaction to results that fall far outside the consensus range

830am - Empire State Manufacturing - Expected at 17.85 vs 19.53 Previously.  Solid "supporting actor" type manufacturing report, partly due to the impressive company it keeps this week

900am - TIC Data.  Shows changes in foreign investment in US Treasuries.  More of a retrospective report, not a major market-moving concern, but good water cooler conversation

1000am - Philly Fed Index - Forecast calls for 12.0 vs 10.2 previously.   This is one of the more potent regional manufacturing barometers, and the last report of the morning.  A big deviation from the consensus is possible market mover, even if it's not a 'range-breaker.'

Domestic markets have traded mostly awfully in the first half hour.  MBS are down 4-5 ticks since opening and down 11 ticks from yesterday, currently at 101-29 in Fannie 3.5's.  10yr yields are nearly 5 bps higher at 2.33 after coming in the door at 2.30.