The data docket is mercifully sparse across the world’s largest economy this week.
That’s a welcome reprieve. Last week’s calendar was oppressively crowded.
Treasurys will retain the spotlight. Two Mondays ago, 10-year US yields breached 5% for the first time since Lehman was a going concern. They’re below 4.60% now.
The head-spinning turnabout was mostly attributable to a series of bond-bullish events that began with the November refunding announcement and crescendoed with a softer-than-expected headline payrolls print.
Midway through October, an unprecedented third consecutive annual loss for Treasurys seemed all but a foregone conclusion. Now, it appears as likely as not that bonds can pull even for 2023.
The Fed’s done, or so markets are inclined to believe, and there’s probably scope for last week’s squeeze to feed on itself. Still, Treasury has a “metric ton of bonds to auction,” as Nomura’s Charlie McElligott put it. Suffice to say this week’s sales will be eyed very closely.
“The highlight will be Wednesday’s $40 billion 10-year offering as 3s and 30s tend to have less directional implications for the broader US rates complex,” BMO’s Ian Lyngen and Ben Jeffery wrote, noting that the sharp move lower in 10-year yields last week “suggests the issue will be rich to recent levels, complicating the process of estimating fair value at the moment.”
The largest Treasury ETF is coming off its second best week of 2023. You’re reminded that we’re approaching the one-year anniversary of a breathtaking rally which accompanied the October 2022 CPI report.
That bond rally, like last week’s, knocked into equities and knocked down the dollar. 10-year yields were 4.22% on November 7, 2022. Just three days later, following the release of what counted as a “cool” inflation report, they were 3.82%. By December 7, they were 3.42%. I’m not suggesting that’s in the offing again, but that’s what can happen.
There’s just one marquee release in the US this week: The new installment of the Fed’s Senior Loan Officer Opinion Survey, due Monday. That briefly became a top-tier release in the wake of March’s regional banking drama. It still matters, but we already know what it’ll show: Credit conditions are tight and credit demand is relatively lackluster. Those expecting fireworks would do well to recall that the last release was billed as a tradable event. It wasn’t. Neither was the one before it despite capturing the fallout from SVB.
Markets will also get consumer credit data on Tuesday, the preliminary read on University of Michigan sentiment for November on Friday and not much else, frankly. There are a bevy of Fed speakers on deck, though, including Jerome Powell (Wednesday and Thursday).
Elsewhere, data will almost surely show Chinese consumer prices failed to pick up last month. Producer prices are guaranteed to spend a 13th consecutive month in deflation territory. Beijing will also release trade and credit data in the days ahead.
