The Day Ahead: Packed Calendar but Few Market Moving Contenders
Yesterday's rally was well-met. Although Monday was technically a positive day for bond markets, it sure didn't feel like it given the fact that 10yr yields opened low and rose all day to hit their highest levels since October 28th. Yesterday, in contrast, was much more convincing. Volume wasn't atrociously large, but respectable enough to count--roughly equivalent to Monday's. 10's now sit on the edge of an important band of yields from 2.29-2.26 that comprise the "ledge" that they reached on 3/14, the biggest and baddest day of selling over the past two weeks.
Today's calendar offers a seemingly endless supply of data, but apart from a few of the events, everything falls into the category of "would need to deviate greatly from estimates to move markets much." The data will provide some guidance though, just as Existing Home Sales provided some guidance yesterday. But we're a bit surprised to see how universally that data is credited with yesterday's rally. Would the price action have moved equally in the opposite direction had Home Sales beaten consensus by the same amount it missed? Not likely, but no way to know for sure.
Our sense is that poker faces are well-rehearsed for this back-up in rates. Even the players who think the sell-off's overdone won't be keen to show that sentiment to the rest of the players until they can see that they'll play it the same way. In short, the players at the table are trying to get a sense as to whether or not Monday's run to 2.399 was the bounce off 2.40 (technically 2.42) that everyone seems to be expecting.
Either way, they'd have us believe they're willing to push yields higher still, even if such a move belies their longer term plans or shorter term instincts. We think it does, at least to the extent that bond markets would be more keen to range trade in the 2.1's and 2.2's versus the 2.3's and 2.4's. Whether or not we see those truer instincts borne out depends on how today's card game goes just as much , if not more than any of this scheduled data. Moral of the story: Technicals and Tradeflows trump scheduled data unless scheduled data speaks VERY loudly.
Scheduled Data
8:30am - Jobless Claims
Every month, one of the instances of weekly Jobless Claims gets a bit more attention than the others due to it's correlation with the Establishment Survey for The Employment Situation Report (NFP). The Establishment Survey normally occurs in the week that contains the 3rd Friday of a given month. In March's case, this is last week and thus the same time frame for which we will see Jobless Claims reported. The chart below shows how the consensus lines up with recent results. 350k has been a troublesome boundary for the report of late and likely carries some psychological value if broken (which would be a negative for bond markets, most likely).
10:00am FHFA House Price Index
No forecast consensus on this one, but it's somewhat interesting to note that home prices have been recovering as far as FHFA sees it--and since early 2011... Who knew?! By contrast, the orange line in the chart below shows the bear's favorite, Case-Shiller Index (20-city index based on the year 2000 = 100 index value). The more recent index mark for the Case-Shiller data accounts for some of the steepness here, but as far as the indexes versus themselves, one is seemingly trending lower while the other is bouncing.
10:00am - Leading Indicators - Often overlooked report (especially by us). It's considered a decent enough proxy for changes in GDP, but we honestly don't remember we saw markets react to it the day it reports as it is more appropriately a recap of data that's already known as opposed to the release of something new and meaty. Pass...
10:15-11:00am Fed Buying 2022-2031 - 10-19 yr maturities give the Fed a fairly wide canvas upon which to paint their duration preferences, not to mention it gives dealers the same canvas to paint the supply they'd most like to ditch. Some clues there on both sides... These scheduled Fed Buybacks have consistently been a a source of volume and volatility even if seldom the outright direction-setter of any given day
11:00am - Treasury Supply Announcement - Dollar amounts of next week's 2s, 5s, and 7s, expected unchanged at 99bln.
1:00pm 10yr TIPS auction - Please note this is a TIPS auction (inflation-protected-securities) and not the standard-issue, big daddy 10yr Note Auction. We only mention it due to a few recent 10 and 30yr TIPS auctions moving the needle to some extent.
Fed Speak:
Tarullo - (voter) at The Senate Banking Committee hearing on Wall Street reform and the Volcker rule - 10:00am,
Bernanke - 2nd in a series of 4 lectures at George Washington University - 12:45pm
Evans and Bullard, both non voters after the close