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The Bond Column

The Week in Review/Week Ahead
Updated: 2014-10-20, 08:56:00 ET
Analyst: Jonathan Garber

The Week in Review: 100-Year Flood Rattles Treasury Market
  • Treasuries booked gains amid an historic week
  • On Wednesday, the complex saw its equivalent of a 100-year flood as a 10 sigma move pushed long dated yields lower by as much as -34bps
  • A comparable move would be an ~14% move in the S&P 500
  • The plunge in yields made for the biggest one-day range for yields since the Fed announced its $1 trln asset purchase program on March 18, 2009
  • Yields spent the rest of the week repairing the damage with both the 10Y and 30Y recouping all of their losses and then some.   
  • Contributing to the selling were Ebola fears, continued weakness in the German economy, and a jump in peripheral yields that was brought on by reports the Greek government is considering an early exit from its IMF rescue.  
  • Economic data was mixed. Retail sales (-0.3% actual v. -0.2% expected), PPI (-0.1% actual v. 0.1% expected), Empire Manufacturing (6.2 actual v. 20.4 expected), and building permits fell short of expectations while industrial production (1.0% actual v. 0.4% expected), capacity utilization (79.3% actual v. 79.0% expected), Philly Fed (20.7 actual v. 19.8 expected), housing starts (1017K actual v. 1013K expected), and Michigan Sentiment (86.4 actual v. 84.0 expected) beat.
  • Up front, the 2Y fell -5bps to 0.379%. The yield pressed below support in the 0.400% and 0.300% areas before bottoming at May 2013 levels near 0.200%
  • In the belly, the 5Y tumbled -11bps to 1.420%. Action tested the 1.100% level before rallying over the second half of the week. The 1.450%/1.550% area will be key in the days ahead.
  • The 10Y fell -9bps to 2.199%. Early in the week bond guru Jeff Gundlach suggested the benchmark yield would bottom in the 2.200% area. However, that prediction would be proven wrong rather quickly as Wednesday's rush to safety dropped the benchmark yield to a low of 1.868%. The yield hit levels last seen in May 2013 before rallying sharply. 
  • At the long end, the 30Y lost -6bps to 2.968%. Wednesday's panic flushed the yield to a more than two-year low of 2.677%. Sharp selling over the remainder of the week produce some prints above the 3.000% level before slipping a bit into the weekend. 
  • The yield curve saw a mixed week as the 2-10-yr spread tightened to 182bps and the 5-30-yr spread widened to 155bps.   
The Week Ahead
  • There is no data on Monday. 
  • Tuesday's data is limited to existing home sales (10). 
  • Wednesday will see the weekly MBA Mortgage Index (7) and CPI (8:30). 
  • Thursday's data includes initial and continuing claims (8:30), FHFA Housing Price Index (9), and leading indicators (10). 
  • Data concludes for the week on Friday with new home sales (10).