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The Bond Column

The Week in Review/Week Ahead
Updated: 2014-08-18, 08:55:24 ET
Analyst: Jonathan Garber

The Week in Review: Longer Dated Yields Press to Lowest Levels in Over a Year 
  • Treasuries posted strong gains this week as global growth concerns and a reemergence of geopolitical worries dropped yields to multi-month lows. 
  • Flat growth in the eurozone and France and negative growth in Germany (-0.2% QoQ) and Japan (-1.7% QoQ) stoked fears of a global slowdown.
  • The situation in Eastern Europe re-escalated as reports from Ukraine suggested the country's defense had destroyed parts of a Russian armored convoy
  • Economic data was light, and mixed, as retail sales (0.0% actual v. 0.3% expected), Empire Manufacturing (14.7 actual v. 15.5 expected), and Michigan Sentiment (79.2 actual v. 81.7 expected) missed while industrial production (0.4% actual v. 0.3% expected) beat and Fed Chair Janet Yellen's favorite indicator, JOLTs - Job Openings (4.671M actual v. 4.577M prior), improved.
  • Auctions for the week started out slow and gradually improved.
  • Tuesday's average $27 bln 3y note auction drew 0.924% and a tepid 3.03x bid/cover.Indirect bids (36.2%) slightly outpaced their 12-auction averages and direct bids (19.0%) were in-line, leaving primary dealers with 44.8% of the supply.  
  • Wednesday's average $24 bln 10y note auction drew 2.439% (WI 2.434%) and a 2.83x bid/cover. A slightly better than average indirect bid (47.0%) helped offset the light direct bid (15.1%). Primary dealers ended up with 37.9% of the supply. 
  • Thursday's strong $16 bln 30y bond auction drew 3.224% (WI 3.247%) and a solid 2.60x bid/cover (12-auction average 2.38x) as indirect (45.9%) and direct (24.4%) bids both outpaced their 12-auction averages. Primary dealers were left with just 29.7% of the supply. 
  • Up front, the 2y shed -4bps to 0.411%. Buying over the course of the week pushed action down to levels last seen at the beginning of June.
  • The 5y fell -7bps to 1.541%. Action pressed below the 200 dma (1.593%) and even probed the 1.500% level before finishing Friday's session near 1.550% support.
  • The 10y tumbled -9bps to 2.345%. The benchmark yield hit a 13-month low of 2.305% before seeing a bounce into week-end. 
  • At the long end, the 30y plunged -9bps to 3.135%. The yield on the long bond hit 3.107%, its lowest since May 2013, before inching up into Friday's close. 
  • Aggressive flattening along the yield curve saw the 2-10-yr spread narrow to 193.5bps and the 5-30-yr spread tighten to 159.5bps.  
The Week Ahead
  • Monday's data is limited to the NAHB Housing Market Index (10). 
  • Data picks up on Tuesday with CPI, core CPI, housing starts, and building permits (8:30). 
  • Wednesday will see the weekly MBA Mortgage Index (7) and the latest FOMC minutes (14). 
  • Data concludes for the week on Thursday with initial and continuing claims (8:30), existing home sales, Philly Fed, and leading indicators (10). The Kansas City Fed's Jackson Hole Symposium begins
  • There is no data on Friday. Fed Chair Janet Yellen will speak on "Labor Markets" at the Kansas City Fed's Jackson Hole Symposium (10).