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Update: 2016-08-23 15:55:19 ET

Moving the Market
  • July New Home Sales: Actual 654K, Briefing.com consensus 580K, Prior 592K
  • $26 bln 2-year Treasury auction: High yield 0.760% (1.1 basis-point stop-through); Bid-to-cover 2.83; Indirect bid 45.8%; Direct bid: 25.2%
  • Dallas Fed President Kaplan (non-FOMC voter) said today that a rate hike would be warranted if the current employment trend continues, according to Nikkei

8/23/2016
3:28:05 ET
10-Year:-3/32 1.55    GNMAs:     EUR/USD:1.1308    USD/JPY:100.21   

Treasuries Rally and Retreat as New Home Sales Jump

  • The U.S. Treasury market ended today's session slightly lower although the 30-year bond continued to exhibit relative strength. New homes in the U.S. sold at their fastest seasonally adjusted annual rate of the recovery during July and that helped keep Treasury buyers in check. In the Treasury bulls favor, the 2-year Treasury auction was met with solid demand and the Richmond Fed's Manufacturing Index fell sharply for August. Investors will see existing home sales data on Wednesday and all eyes remain focused on Fed Chair Yellen's speech set for Friday morning. The S&P 500 is now up 0.28% to 2,188.8 and the U.S. Dollar Index is up 0.02% to 94.54
  • Yield Check:
    • 2-yr: unch at 0.72%
    • 5-yr: +1 bp to 1.14%
    • 10-yr: +1 bp to 1.55%
    • 30-yr: unch at 2.24%
  • News:
    • New home sales in the U.S. leapt to an eight-year high of 654K (seasonally adjusted annual rate) in July
      • The median selling price fell 0.5% y/y to $294,600 and inventory fell to 4.3 months' worth of sales
      • Analysts noted that the South was the best performing region by far
    • The Richmond Fed's Manufacturing Index plunged to -11 in August from 10 in July. Analysts had expected a much smaller decline
    • The U.S.'s Markit Manufacturing PMI fell to 52.1 for August from 52.9 for July
    • $26 bln 2-year Treasury auction
      • High yield: 0.760% (1.1 basis-point stop-through)
      • Bid-to-cover: 2.83
      • Indirect bid: 45.8%
      • Direct bid: 25.2%
  • Commodities:
    • WTI crude: +1.35% to $48.05/bbl.
    • Gold: -0.03% to $1,343/troy oz.
    • Copper: -1.26% to $2.11/lb.
  • Currencies:
    • EUR/USD: -0.11% to 1.1308
    • USD/JPY: -0.13% to 100.21
  • Data out Wednesday:
    • MBA Mortgage Index for the week ending 8/20 (07:00 ET)
    • JuneFHFA Housing Price Index (09:00 ET)
    • July Existing Home Sales (10:00 ET)
    • CrudeInventories for the week ending 8/13 (10:30 ET)
  • Treasury Market Summary:
    • $34 bln 5-year Treasuryauction (results at 13:00 ET)

 
8/23/2016
2:44:19 ET
10-Year:-2/32 1.55    GNMAs:     EUR/USD:1.1309    USD/JPY:100.15   

Euro Weakens Despite Strong PMI Data

  • The U.S. Dollar Index is unchanged at 94.52 today as the pound sterling moved to a two-week high and the New Zealand dollar touched a one-year high against the greenback. The euro fell slightly despite better-than-expected purchasing managers' index data for August. Nevertheless, the euro has been quietly sneaking higher over the past two weeks and is within 150 pips of a three-month high
  • EUR/USD: -0.09% to 1.1309
    • The eurozone's Markit composite PMI unexpectedly climbed to 53.3 for August from 53.2 for July
      • The eurozone's manufacturing PMI unexpectedly fell to 51.8 for August from 52.0 in July
      • The eurozone's services PMI beat expectations in August, rising to 53.1 from 52.9 in July
  • GBP/USD: +0.49% to 1.3196
    • In the U.K., CBI Industrial Trends Orders unexpectedly edged down  to -5 in August from -4 in July
      • The export order balance climbed to a two-year high of -6
  • USD/CHF: +0.01% to 0.9627
    • Switzerland's trade surplus unexpectedly narrowed to CHF2.93 bln in July from CHF3.51 bln in June
  • USD/JPY: -0.19% to 100.15
    • Japan's manufacturing purchasing managers' index rose more than expected to 49.6 for August from the prior reading of 49.3
  • USD/CNY: -0.15% to 6.6462
  • USD/TRY: +0.28% to 2.9499
    • Turkey's central bank cut its overnight lending rate by 25 basis points to 8.5%, as expected
    • An index of Turkish consumer confidence jumped to 74.4 in August from 67 in July
  • USD/CAD: -0.22% to 1.2912
  • AUD/USD: -0.10% to 0.7621
  • NZD/USD: +0.37% to 0.7304

 
8/23/2016
1:26:13 ET
10-Year:-2/32 1.55    GNMAs:     EUR/USD:1.1322    USD/JPY:100.14   

2-Year Auction Garners Strong Demand

  • The U.S. Treasury complex is well off of its session highs at the moment despite very solid demand for the 2-year Treasury auction. The WI (when-issued) security was trading at 0.771% just before the auction, so the high yield of 0.760% was a good performance. WTI crude trades 1.41% higher at $48.08/bbl. and the S&P 500 is up 0.34% to 2,190. The U.S. Dollar Index is down 0.09% to 94.44 and gold is up 0.21% to $1,346.1/troy oz.
  • Nikkei is reporting that Dallas Fed President Kaplan (non-FOMC voter) said a rate hike is warranted if the current jobs trend continues
  • Yield Check:
    • 2-yr: +1 bp to 0.75%
    • 5-yr: unch at 1.14%
    • 10-yr: +1 bp to 1.55%
    • 30-yr: unch at 2.23%

 
8/23/2016
1:06:04 ET
10-Year:-4/32 1.56    GNMAs:     EUR/USD:1.1323    USD/JPY:100.20   

Treasury Auction Results

  • $26 bln 2-year Treasury auction
    • Auction results:
      • High yield: 0.760% (1.1 basis-point stop-through)
      • Bid-to-cover: 2.83
      • Indirect bid: 45.8%
      • Direct bid: 25.2%
    • Average results of prior 12 auctions:
      • High yield: 0.829%
      • Bid-to-cover: 2.91
      • Indirect bid: 45.7%
      • Direct bid: 15.5%

 
8/23/2016
12:11:04 ET
10-Year:-2/32 1.55    GNMAs:     EUR/USD:1.1312    USD/JPY:100.21   

Treasuries Find Resistance After Strong New Home Sales

  • Treasuries are trading near unchanged ahead of the $26 bln 2-year Treasury auction. WTI crude is up just 0.89% to $47.83/bbl. and the S&P 500 is adding 0.35% to 2,190.2. The U.S. Dollar Index is down 0.01% to 94.51 and gold is down 0.08% to $1,342.3/troy oz.
  • Yield Check:
    • 2-yr: unch at 0.74%
    • 5-yr: +1 bp to 1.14%
    • 10-yr: +1 bp to 1.55%
    • 30-yr: unch at 2.24%

 
8/23/2016
11:55:36 ET
10-Year:-04/32 1.549%    GNMAs:     EUR/USD:1.1311    USD/JPY:100.20   

Markets Snooze, Await Yellen: The Dollar Index is trading in a tight range at the low end of 94. The DXY was under some pressure overnight but held the 94.20 area and has regained a portion of its losses as it moves back approx 20 pips over the course of the past 8 hours. Volume remains extremely light. Economic data was mixed as we saw a miss int he Markit Manufacturing PMI preliminary look but a big beat in the July New Home Sales report. Neither report is change the current narrative as markets await the Fed Chair speech on Friday.

  • The euro saw some early bids as it rallied to the 1.1355 area but it has failed to hold those gains. The region saw some better than feared preliminary Manufacturing and Services number. The Eurozone composite actually rose to a seven month high but it did have some cautious comments about forward orders and employment that could lead to a slow down in the coming months. Still, the data is being viewed as a positive as the economy has not fallen off a cliff since the Brexit vote.
  • The pound saw an early bid that drove it to the 1.32 level for the first time since August 4 when it cut rates and announced its bond purchase programs. The currency has run into resistance but is holding on to the majority of its gains as it probes just beneath the level.
  • The yen in the mean time continues its flirtations with the 100-psyche level. Yen pressed to 99.92 but was unable to hold the ground. The preliminary Manufacturing PMI number came in slightly better than expected and is having little impact on trade.

 
8/23/2016
11:38:18 ET
10-Year:-3/32 1.55    GNMAs:     EUR/USD:1.1325    USD/JPY:100.17   

Treasury Auction Preview

  • $26 bln 2-year Treasury auction (results at 13:00 ET)
    • Prior auction results:
      • High yield: 0.760%
      • Bid-to-cover: 2.52
      • Indirect bid: 29.9%
      • Direct bid: 10.3%
    • Average results of prior 12 auctions:
      • High yield: 0.829%
      • Bid-to-cover: 2.91
      • Indirect bid: 45.7%
      • Direct bid: 15.5%


 
8/23/2016
11:08:40 ET
10-Year:-2/32 1.55    GNMAs:     EUR/USD:1.1318    USD/JPY:100.16   

Treasuries Give Back Gains

  • Treasuries are backing off of their best levels this morning as WTI crude bounces from its low of $46.59/bbl. to trade up 1.41% to $48.08/bbl. Iran has generated some headlines about helping to boost oil prices. The S&P 500 is up 0.36% to 2,190.5 and the U.S. Dollar Index is down 0.11% to 94.42. Gold is up 0.01% to $1,343.5/troy oz.
  • The FT's Alphaville blog writes this morning about a research piece from Citi's Matt King:
    • He notes that credit spreads are narrowing (investment-grade corporate bond indices are at their narrowest for the year) despite higher leverage and defaults.
    • King also notes that yields now fall at the same time as credit spreads narrow. That relationship makes little sense if you believe that lower Treasury yields show slower growth, which should result in more defaults and therefore wider credit spreads. The only explanation that appears to work is that central bank asset purchases and momentum trading from investors (in expectation of more CB purchases) are pushing both credit spreads narrower and yields lower at the same time
    • And then Brad DeLong's criticism of this analysis from the perspective of an academic economist:
      • If King has a magic wand that can boost government purchases massively, then yes--higher interest rates might well be appropriate. But he doesn't. So what is the magic wand that would boost what component of spending to offset downward pressure on exports, business investment, residential investment, and consumer durables spending that would come from higher interest rates and lower inflation right now? Or what is the magic wand that would make buyers of exports, planners of business investment, and buyers of new houses from reacting to the signals prices are sending them?
  • A policy paper from the Fed appears to indicate that it has little in the way of ammunition in the event of another downturn
  • Yield Check:
    • 2-yr: +1 bp to 0.75%
    • 5-yr: unch at 1.14%
    • 10-yr: unch at 1.55%
    • 30-yr: unch at 2.23%

 
8/23/2016
10:10:02 ET
10-Year:+2/32 1.53    GNMAs:     EUR/USD:1.1333    USD/JPY:100.10   

Treasuries Remain Unimpressed with Stronger U.S. Data

  • U.S. Treasuries are still higher this morning following the release of a gangbusters New Home Sales report for August. The yield curve continues to flatten and 2's/30's has narrowed to 148 basis points, having touched 147 bps earlier, an eight-year low
  • New home sales in the U.S. leapt to an eight-year high of 654K (seasonally adjusted annual rate) in July
    • The median selling price fell 0.5% y/y to $294,600 and inventory fell to 4.3 months' worth of sales
    • Analysts noted that the South was the best performing region by far
  • The S&P 500 is up 0.47% to 2,192.8 and WTI crude is down 1.35% to $46.77/bbl.
  • The U.S. Dollar Index is down 0.17% to 94.36 and gold is up 0.25% to $1,346.7/troy oz.
  • The U.S.'s Markit Manufacturing PMI fell to 52.1 for August from 52.9 for July
  • The Richmond Fed's Manufacturing Index plunged to -11 in August from 10 in July. Analysts had expected a much smaller decline
    • The Services Index fell to zero from eight
  • China bond futures fell dramatically today on speculation that the People's Bank of China would ease monetary policy by issuing 14-day reverse repos in its daily open market operations. It currently issues seven-day reverse repos. More from Reuters
  • Yield Check:
    • 2-yr: unch at 0.74%
    • 5-yr: -1 bp to 1.13%
    • 10-yr: -1 bp to 1.53%
    • 30-yr: -2 bps to 2.22%

 
8/23/2016
9:02:00 ET
10-Year:-1/32 1.55    GNMAs:     EUR/USD:1.1339    USD/JPY:100.04   

Investors Wait on New Home Sales

  • U.S. Treasuries are trading around their unchanged marks this morning although the 30-year is showing some relative strength. Despite the fact that the odds of a 2016 rate hike from the Fed have been increasing since Q2 U.S. GDP growth spooked investors, the U.S. dollar has not been performing well. The Dollar Index is down 0.19% to 94.34 today. The S&P 500 is set to open up 0.31% to 2,189.1 and WTI crude is down 0.65% to $47.10/bbl. Gold is up 0.33% to $1,347.9/troy oz.
  • Fed funds futures indicate that a rate hike from the Fed by year-end is 50/50, according to the CME website
  • Yield Check:
    • 2-yr: +1 bp to 0.75%
    • 5-yr: unch at 1.14%
    • 10-yr: unch at 1.55%
    • 30-yr: -1 bp to 2.23%%
  • 10-Year Yield (Daily): We have been saying for a few weeks now that long-term Treasury yields look unjustifiably low, but of course the market can remain irrational for longer than you can remain solvent. We think that 10-year Treasury yield support at the 21-day moving average (1.539%) should be holding and the downtrend that we have drawn should be breaking, probably today. A lot of people will be positioning for a sell-off in Treasuries and higher prices may send shorts running for the hills.

 
8/23/2016
8:26:23 ET
10-Year:-3/32 1.55    GNMAs:     EUR/USD:1.1344    USD/JPY:100.05   

European Yields Climb After PMI Data

  • European sovereign yields are mostly higher today as sentiment among eurozone purchasing managers rose to a seven-month high in the August survey. The report was hardly terrific, but it did show that sentiment has rebounded from the post-Brexit-vote panic. Portugal's sovereign debt continues to decline as investors worry that the country's last investment grade rating -- from Canadian ratings agency DBRS -- will be withdrawn. An investment grade rating from one of the four (DBRS, S&P, Moody's, or Fitch) is necessary for a eurozone country to qualify for the European Central Bank's asset purchase program. The euro currency is now quietly close to a two-month high, up 0.22% to 1.1344 this morning
  • Economic Data:
    • The eurozone's Markit composite PMI unexpectedly climbed to 53.3 for August from 53.2 for July. That was the highest level in seven months, but the internals of the report like the the new orders index were weaker than the headline reading
      • The eurozone's manufacturing PMI unexpectedly fell to 51.8 for August from 52.0 in July
      • The eurozone's services PMI beat expectations in August, rising to 53.1 from 52.9 in July
      • The country-by-country breakdown showed French manufacturing activity slightly disappointing estimates (48.5 vs. 48.6 prior) while service sector activity leapt past expectations (52.0 vs 50.5 prior). Meanwhile, German manufacturing activity surprised a touch on the upside (53.6 vs. 53.8 prior) but services activity fell significantly (53.3 vs. 54.4 prior)
    • In the U.K., CBI Industrial Trends Orders unexpectedly edged up to -5 in August from -4 in July
      • The export order balance climbed to a two-year high of -6
    • Switzerland's trade surplus unexpectedly narrowed to CHF2.93 bln in July from CHF3.51 bln in June
    • Hungary's central bank kept its main policy rate unchanged at 0.9%
  • Yield Check:
    • France, 10-yr OAT: +1 bp to 0.15%
    • Germany, 10-yr Bund: unch at -0.09%
    • Greece, 10-yr note: unch at 7.98
    • Italy, 10-yr BTP: +3 bps to 1.14%
    • Portugal, 10-yr PGB: +6 bps to 3.06%
    • Spain, 10-yr ODE: +2 bps to 0.96%
    • U.K., 10-yr Gilt: unch at 0.56%

 
8/23/2016
7:46:33 ET
10-Year:-5/32 1.56    GNMAs:     EUR/USD:1.1344    USD/JPY:100.09   

Treasuries Edge Lower After Resilient Eurozone PMI Data

  • U.S. Treasuries are pulling back this morning as a decent showing from eurozone purchasing manger indices for August helped draw a line under the five-day sell-off in European equities. Monday's Treasury trade showed some sharp flattening in the yield curve, so this morning's retreat leaves 2 and 5-year note yields near multi-week highs. Portugal's 10-year yield is at a one-month high this morning as concern over a potential credit rating discourages bargain hunters. The first significant piece of U.S. economic data this week is the New Home Sales report, to be released at 10:00 ET. The S&P 500 is set to open up 0.25% to 2,188.3 and WTI crude is down 0.74% to $47.06/bbl. Gold is up 0.09% to $1,344.6/troy oz. and the U.S. Dollar Index is down 0.19% to 94.34
  • Yield Check:
    • 2-yr: +2 bps to 0.75%
    • 5-yr: +2 bps to 1.6%
    • 10-yr: +2 bps to 1.56%
    • 30-yr: +1 bps to 2.25%
  • International News:
    • Japan's manufacturing purchasing managers' index rose more than expected to 49.6 for August from the prior reading of 49.3
      • Bank of Japan Governor Kuroda did not comment on monetary policy in his remarks overnight
    • The eurozone's Markit composite PMI unexpectedly climbed to 53.3 for August from 53.2 for July
      • The eurozone's manufacturing PMI unexpectedly fell to 51.8 for August from 52.0 in July
      • The eurozone's services PMI beat expectations in August, rising to 53.1 from 52.9 in July
    • The country-by-country breakdown showed French manufacturing activity slightly disappointing estimates (48.5 vs. 48.6 prior) while service sector activity leapt past expectations (52.0 vs 50.5 prior). Meanwhile, German manufacturing activity surprised a touch on the upside (53.6 vs. 53.8 prior) but services activity fell significantly (53.3 vs. 54.4 prior)
    • In the U.K., CBI Industrial Trends Orders unexpectedly edged up to -5 in August from -4 in July
      • The export order balance climbed to a two-year high of -6
    • Switzerland's trade surplus unexpectedly narrowed to CHF2.93 bln in July from CHF3.51 bln in June
    • Turkey's central bank cut its overnight lending rate by 25 basis points to 8.5%, as expected
      • An index of Turkish consumer confidence jumped to 74.4 in August from 67 in July
  • Data out Tuesday:
    • July New Home Sales (10:00 ET)
  • Treasury Auction:
    • $26 bln 2-year Treasury auction (results at 13:00 ET)

 
8/22/2016
3:33:06 ET
10-Year:+11/32 1.54    GNMAs:     EUR/USD:1.1324    USD/JPY:100.28   

Yield Curve Flattens as Oil Sell-Off Triggers Short-Covering in Bonds

  • U.S. Treasuries pushed higher today, reversing some overnight losses that followed Fed Vice Chair Fischer's hawkish speech in Aspen, Colorado. The rally was a bit surprising in light of Fischer's apparent green light to a rate hike this year, but the gains can be partially explained away by dovish comments from Bank of Japan Governor Kuroda that was published over the weekend and falling oil prices today. The S&P 500 now trades down 0.04% to 2,182.9 and the U.S. Dollar Index is up 0.01% to 94.52. The U.S. Treasury will hold the first of this week's three auctions tomorrow, selling $26 bln of 2-year notes. Investors will also see New Home Sales for July
  • Yield Check:
    • 2-yr: -1 bp to 0.74%
    • 5-yr: -3 bps to 1.13%
    • 10-yr: -4 bps to 1.54%
    • 30-yr: -5 bps to 2.24%
  • News:
    • Corporate bond spreads traded to their narrowest levels for the year as record highs for U.S. equities and record lows for U.S. Treasury yields have driven investors to seek more yield
    • The Chicago Fed's National Activity index rose to 0.27 for July from 0.05 in June, beating expectations
    • Fed Vice Chair Fischer made rather upbeat and hawkish remarks on Sunday, saying that the labor market is "remarkably resilient" and that the Fed is close to its targets
  • Commodities:
    • WTI crude: -3.40% to $47.44/bbl.
    • Gold: -0.27% to $1,342.5/troy oz.
    • Copper: -1.22% to $2.1405/lb.
  • Currencies:
    • EUR/USD: -0.02% to 1.1322
    • USD/JPY: +0.06% to 100.28
  • Data out Tuesday:
    • July New Home Sales (10:00 ET)
  • Treasury Auction:
    • $26 bln 2-year Treasuryauction (results at 13:00 ET)