Good Morning … Treasuries rose on Thursday on mixed economic data. Initial jobless claims fell last week by 2k, although continuing claims rose and inflation data came largely in line with expectations. December CPI rose 0.3%; ex- food, energy was up 0.1%. The annualized inflation rates of 1.5% (composite) and 1.7% (core) are below the Fed’s target for inflation (2%), quelling fears that rising inflation may cause the Fed to accelerate a tapering of its bond buying program. Also boosting treasury performance Thursday was the latest monthly capital flows release from the Treasury department which highlighted that China and Japan boosted their holdings of Treasury bonds by $12 and $12.2 billion in November, respectively, to a record high. Steady foreign demand for Treasuries helps to contain the rise in bond yields, keeping borrowing costs low for consumers and businesses. At 5pm, the 10-year note was up 11 ticks to yield 2.843% and 30-year bond gained 19 ticks to yield 3.773%. Mortgages traded tighter to swaps (outperform) for most of the day on Thursday. Buying from the Fed, REITs and real money accounts outpaced supply (less than a billion) to send the coupon stack higher with 3.5s and 4s performing best. At the close, FN 30yr 4.0% were up 10 ticks (103-29+), PC 4.0% were up 12+ ticks (103-18+) and GN 30yr 4.0% were up 10+ ticks (105-03+). Gold/Fannie swaps were largely unchanged. Ginnie/Fannie swaps were marginally higher in the 4% and 4.5% coupon as both rolls popped higher on Class C 48hr day, closing above 11 ticks and 9.75 ticks respectively. The GN/FN 4 swap ended up 1+ ticks to 1-07 ticks while the GN/FN 4.5 swap was up a tick to 1 point. Looking at Fed purchases for the week ended January 15, the Fed bought $14.3 billion vs. $13 billion the previous week, heavily weighted in the 4% coupon (61.5% vs. 55.44% prior week). Daily Fed purchases have been north of $2.5 billion a day while supply has averaged just north of $1 billion. Even with the Fed set to cut purchases by $5 billion in January, net purchases by the Fed are likely to continue to overwhelm supply and there is little economic data coming between now and the FOMC meeting that could spur on further taper plans. Finally, in equities, earnings reports released on Thursday were mostly disappointing. Goldman Sachs, Citigroup and Best Buy earnings were lighter than expected, with Best Buy’s stock plunging almost 29% on the day as a result. The Dow closed down 64.93 points, or 0.39%, to end at 16,417.01, the S&P 500 lost 2.49 points, or 0.13%, to finish at 1,845.89 and the Nasdaq gained 3.81 points, or 0.09%, closing at 4,218.69. Treasuries and equity futures are pointing higher this morning. Today’s economic releases include Housing Starts for Dec (cons 990k vs. 1.091 million prior), Industrial Production (cons +0.3% vs. 1.1% prior), and University of Michigan Consumer Confidence Index for Jan ( cons 83.5 vs. 82.5 in Dec). Richmond Fed President Lacker (NV) speaks today in Richmond.
Posted on: Fri, 17 Jan 2014 15:22:09 +0000