The Day Ahead: GDP, Jobless Claims and Treasury Auction

Bond markets have increasingly shown their hand regarding Syria-related headlines and their ability to influence a flight-to-safety (where stock prices and Treasury yields fall).  That is to say, bond markets have been reluctant to participate in such moves to same extent as equities markets. 

Wednesday was informative in that Treasury yields were already on the rise from the overnight session despite equities being at their lowest levels just before 9:30am.  Then, the weaker-than-expected economic data did nothing to give pause to the selling in bond markets.  That's not to say that Pending Home Sales is normally extra important as far as market movement is concerned, but it was an opportunity to adjust momentum that Treasuries ignored.

Syria-related headlines can still have an impact, but so far, the overwhelming sense is that they were merely a relationship of convenience for Treasuries who were already seeing support at recent multi-year highs last week.  The range trade below is pretty straightforward (yellow lines).  And the white line (5yr moving average) gives some mathematical reference point for the unwillingness to move lower as quickly as stocks.

Today's data is decidedly different that yesterday's Pending Home Sales.  We have GDP and Jobless Claims both at 8:30am.  While data from the 2nd quarter (GDP) doesn't tell us much about how the economy is responding to the rise in interest rates (most of which has happened in the third quarter), it will clue us in to how much bond markets even care about economic data ahead of the three day weekend and next week's Employment Situation numbers.  Jobless Claims may do just as much if not more in that regard.

A lot would depend on the size of the "miss" or the "beat" in the case of GDP, as a marked decrease in growth would still be meaningful even if it is only Q2 data.  Stronger growth is expected and it would have to be staggeringly strong to make markets forget that Q3 is still a bit of a wild card.  Worst case, revisiting recent highs isn't out of the question, but it would take some doing.