The Week in Review/Week Ahead
Updated: 2015-01-26, 08:55:29 ET
Analyst: Jonathan Garber
The Week in Review: Europe's QE Pushes Long End of U.S. Curve Lower
- Treasuries saw a mixed holiday-shortened week as selling took place up front while buyers were in charge in the back.
- Sellers were in control early in the week, but an aggressive bid developed in response to the European Central Bank launching its QE program.
- The ECB announced it will purchase EUR60 bln worth of securities each month until September 2016. However, there has been talk the program will be open ended.
- Money flooded into European sovereign debt in response to the initiative, pushing yields across the region to all-time lows. This caused money to move into the long end of the U.S. curve as traders played rate differentials.
- Recent declines in energy prices caused the Bank of Japan to lower its inflation forecast for the fiscal year to 1% (1.7% previous).
- A quiet week on the data front was mostly limited to housing numbers. Housing starts (1089K actual v. 1040K expected) posted the lone upside surprise while NAHB Housing Market Index (57 actual v. 58 expected), building permits (1032K actual v. 1060K expected), and existing home sales (5.04M actual v. 5.10M expected) missed. Elsewhere, leading indicators (0.5%) matched expectations.
- Up front, the 2Y ticked up +1bp to 50bps. Current levels remain under close watch as the area has served as a key pivot since June.
- In the belly, the 5Y edged up +2bps to 1.324%. Action probed the 1.400% level early Thursday, but pulled back after the ECB announced its QE program.
- The 10Y fell -3bps to 1.817%. The benchmark yield ended the week near 1.800% support.
- Outperformance at the long end pushed the 30Y down -6bps to 2.394%. The yield on the long bond ended the week with its lowest close ever.
- Curve flattening persisted as the 2-10-yr spread tightened to 131.5bps.
- There is no data on Monday.
- Data for the week kicks on Tuesday with durable orders (8:30), Case-Schiller 20-city Index (9), consumer confidence, and new home sales (10). Treasury will auction $26B 2Y notes.
- Wednesday's data is limited to the weekly MBA Mortgage Index (7). The latest FOMC rate decision (14) will be announced. Treasury will hold a $35B 5Y note auction.
- Thursday's data includes initial and continuing claims (8:30) and pending home sales (10). Treasury will auction $29B 7Y notes.
- Friday's data is the most anticipated of the week as GDP-Adv., Employment Cost Index (8:30), Chicago PMI (9:45), and Michigan Sentiment - Final (9:55) are due out.