Treasuries Under Pressure as Week Opens

  • Equities are finding an early bid this morning off news that President Biden will review the China tariff policy. That comment boosted risk assets on the possibility that some tariffs may be rolled back. Going from a review of China tariffs is one thing and getting to actual rollbacks is quite another, but the market is bidding risk assets on that potential outcome and that has Treasuries trading in the red.

 

  • The 10yr Treasury yield currently stands at 2.84% after trading as low as 2.77% Friday afternoon. The recent range between 2.75% and 3.00% seems to remain our best guide as the market weighs the competing forces of inflation and financial tightening leading to slower economic growth. Until that picture comes into better focus the range  is likely to hold.

 

  • A couple of reports will be released this week that could give us some information on any slowing in the economy with durable goods orders on Wednesday and personal income and spending on Friday. Both reports are expected to show some slight slowing from March but admittedly, the April numbers are likely just too soon into the hiking campaign to reflect much shifting from the recent trends.

 

  • We also get  a pair of housing-related reports in new home sales tomorrow and pending home sales on Thursday. This interest rate-sensitive sector has been the first to slow with the rise in mortgage rates and the April numbers are also expected to show a modest decline in activity from March. Again, nothing dramatic is expected but it’s a sign the red-hot housing sector is starting to cool just a bit.

 

  • The FOMC minutes from the May 4 meeting will be released on Wednesday and investors will be looking for discussions over the magnitude and pace of future rate hikes. While the 50bps hike at the meeting was unanimously approved, the minutes are likely to hold some discussion over a possible 75bps hike and also some discussion over the pace of 50bps hikes down the road. The discussions are likely to have a hawkish tone which may lead to some pressure on Treasuries as a result.

 

  • Also applying some pressure on Treasuries may be concessions for auctions this week of 2yr ($47 billion), 5yr ($48 billion), and 7yr ($42 billion) notes. Those auctions tomorrow, Wednesday and Thursday should keep rallies limited until the new securities are put away.

Source: Bloomberg


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.63 2.84 2.96 3.13 3.38 3.84
0.50 2.61 2.81 2.90 3.02 3.24 3.73
1.00 2.61 2.78 2.87 2.98 3.15 3.60
2.00 2.77 2.81 2.90 3.03 NA
3.00 2.85 2.97 NA
4.00 2.92 NA
5.00 2.88 NA
10.00 NA

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Published: 05/23/22 Author: Thomas R. Fitzgerald