Treasury has big borrowing week ahead

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Published Date 3/26/2018

No matter what the news —higher stocks, lower stocks, trade wars, political drama —nothing seems to have the power to break the 10-yr range. Friday the 10-yr yield fell at one point to 2.80%, closing at 2.81%. The bottom of the range that now has extended since the beginning of February; two months trading in a 10 bp range. This morning (after a drubbing Friday) the stock indexes futures pointed to a very strong opening at 9:30 am EST; 10-yr at 2.84%, adding +3 bps, and MBS prices at 9:00 am down -9 bps from Friday’s close.

At 9:30 am the DJIA opened +414, NASDAQ +141, S&P +43. 10 yr note 2.84% +3 bp. Fannie 4.0 30 yr coupon -9 bps from Friday’s close and -1 bp from 9:30 Friday morning.

We have mentioned a few times here that the media’s coverage of the stock market fall may be making things worse by the tone it sets with its “talking heads” on financial news channels. In the Wall Street Journal's opinion page this morning a former CNBC news reporter talks about this phenomenon.

Trade fears remain the main topic; last week global markets were hammered on worries the world may develop into a massive trade war. The DJIA fell 1,400 points, NASDAQ -489 and S&P -164; panic and swift declines set off sell signals in the world of algorithms, and AI trading. It easily spilled over in the media, adding more angst. Trade talks dominated and will likely to continue. No trade wars will likely occur, no winners, every country, and all people will suffer. We have and will continue to believe that trade wars are very unlikely. Over the weekend news surfaced that China and the US are already in talks. The result is sending stock indexes much higher.

Treasury has a big borrowing week; $300B of notes to be sold. The markets are going to have increasing difficulty funding the increasing debt this year and next. Our estimate for the federal budget deficit this year will be about $1 trillion, up from -$655B on 2017 fiscal year.

There are no scheduled economic releases today. News on trade still dominates. Stock indexes recovered nearly all of Friday’s losses, but will the key indexes manage to hold at the opening levels?

The 10-yr remains well tethered in its 10 bp range, keeping mortgage rates steady the last month. The key data this week; Thursday Feb income and spending along with the PCE, the Fed’s preferred inflation reading; PCE expected +0.2%, +1.7% yr/yr; PCE core m/m +0.2%, yr/yr +1.5%.

This Week’s Calendar:

Monday,

8:30 am February Chicago Fed National Activity Index (expected at 0.5, the index) jumped to 0.88

1:00 pm $30B 2-yr note auction

Tuesday,

9:00 am Jan Case/Shiller et al Home Price Index (20 city m/m +6.2%)

10:00 am March consumer confidence index (131 from 130.8)

1:00 pm $35B 5-yr note auction

Wednesday,

7:00 am Weekly MBA mortgage applications

8:30 am Q4 final GDP (2.7% up from 2.5% on the prelim last month; price deflator 2.3%; real consumer spending +3.8%)

February US trade deficit (-$74.0B)
February wholesale inventories (+0.5%)

10:00 am NAR pending home sales (+2.7% after declining 4.7% in Jan)

1:00 pm $29B 7 yr note auction)

Thursday,

8:30 am weekly jobless claims (228K -1 K)

February personal income and spending (income +0.4%, spending +0.2%; PCE price index +0.2%, +1.7% yr/yr; PCE core m/m +0.2%, yr/yr +1.5%)

9:45 am March Chicago purchasing mgrs. index (63.2 from 61.9)

10:00 am U. of Michigan final March consumer sentiment index (unchanged from mid-month at 102.0)

Source: TBWS

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