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The Bond Column

The Week in Review/Week Ahead
Updated: 2014-09-29, 08:55:50 ET
Analyst: Jonathan Garber

The Week in Review: Treasuries See Mixed Week
  • Treasuries saw a mixed week as selling took hold up front while buyers were in control in the rear
  • The choppy trade came as the Dollar Index raced to its best levels since July 2010.
  • This week's economic data was mixed as existing home sales (5.05M actual v. 5.2M expected), durable orders (-18.2% actual v. -16.3% expected), and Michigan Sentiment - Final (84.6 actual v. 85.0 expected) missed estimates while new home sales (504K actual v. 435K expected) beat. Q2 GDP - Third Estimate improved to an in-line 4.6%,   
  • Philly Fed President Charles Plosser announced he will retire from his post on March 1, 2015.
  • The complex saw some selling Friday morning after Bill Gross announced he was leaving Pimco, but the weakness had more to do with maturities rubbing up against key resistance levels.
  • Auctions got off to a good start, but turned sloppy as the week progressed.
  • Tuesday's $29 bln 2Y note auction was the strongest of the week. The auction drew 0.589% (WI 0.595%) and a solid 3.56x bid/cover. A large indirect (40.9%) takedown provided support as the direct bid (16.1%) came in light. Primary dealers ended up with 43% of the supply. 
  • Wednesday's $35 bln 5Y note auction was sloppy, drawing 1.800% (WI 1.793%) and a light 2.56x bid/cover. A strong indirect bid (50.3%) partially offset the weak direct bid
    (8.8%). Primary dealers were left with 40.9% of the supply. 
  • Thursday's $29 bln 7Y note auction was disappointing as the complex saw a ferocious rally going into the offering. The auction drew 2.235% (WI 2.225%) and a 2.48x bid/cover.
    A solid indirect bid (48.3%) provided support as direct bids (10.0%) were half the 12-auction average. Primary dealers ended up with 41.7% of the supply.
  • Up front, the 2Y rallied +4bps to 0.594% and posted its highest close since May 2011
  • Light selling in the belly ran the 5Y up to +2bps to 1.802%. The yield tested support in the 1.750% area, but managed to hold the level. 
  • A modest bid pushed the 10Y down -4bps to 2.535%. Action slipped below the 100 dma and pressed the psychologically important 2.500% level, but was unable to hold below either. 
  • Outperformance at the long end dropped the 30Y -6bps to 3.216%. The yield on the long bond finished near a three-week low and on key support in the area. 
  • A flatter curve won out as the 2-10-yr spread narrowed to 194bps and the 5-30-yr spread tightened to 141.5bps. 
The Week Ahead
  • Data begins to flow on Monday as personal income and spending, PCE Prices - Core (8:30), and pending home sales (10) are due out. Chicago Fed head Evans will appear on CNBC's "Squawk Box" to discuss the economy (8) before taking his show to the National Association for Business Economics annual meeting (9). 
  • Tuesday's data includes Case-Shiller 20-city Index (9), Chicago PMI (9:45), and consumer confidence (10).
  • Data remains heavy on Wednesday as the weekly MBA Mortgage Index (7), ADP Employment Change (8:15), ISM Index, construction spending (10), and auto/truck sales (14) are scheduled for release. 
  • Thursday will see Challenger Job Cuts (7:30), initial and continuing claims (8:30), and factory orders (10) cross the wires. STL's Bullard participates in a discussion on monetary policy and the economy (18:30). The Richmond Fed's two-day conference on "The Labor Market After the Great Recession" begins. 
  • Friday's data is the most anticipated of the week with the release of nonfarm payrolls, nonfarm private payrolls, unemployment rate, hourly earnings, average workweek, trade balance (8:30), and ISM Services (10). The Richmond Fed's two-day conference on "The Labor Market After the Great Recession" concludes.