The Week in Review/Week Ahead

Treasuries were under pressure this week as equity markets climbed higher amid a slow week of news and data. Meaningful data was absent with releases limited to the better than expected initial (323K actual v. 336K expected, 327K previous) and continuing (3005K actual v. 3019K expected, 3032K previous) claims. On Thursday, The Treasury complex was rattled by rumors the Fed was considering scaling back its QE program, but the whispers failed to amount to truth.

Heavy selling weighed on maturities across the complex as sellers remained in control after last Friday's sharp selloff following the better than expected nonfarm payroll report. Trade pushed lower in four of five sessions this week as Wednesday's gains were quickly wiped away. Weakness was most apparent at the long end of the curve as yields there rallied as much as 15 bps over the course of the week. The selling ran the benchmark 10-yr yield up to 1.900% by Friday's cash close as it ended the week at its highest level in one and a half months. The yield ended the week just more than 15 bps below its highest close of 2013 (2.056%).   

This week's selling swung the yield curve steeper with the 2-10-yr spread widening to 165.5 bps.

Tuesday's solid $32 bln 3-yr note auction drew 0.354% and a weak 3.38x bid/cover (12-auction average 3.57x), but saw a solid 30.7% take down by direct bidders. Primary dealers were stuck with more than 54% of the supply as directs bought just 14.6% of the supply. Wednesday's disappointing $24 bln 10-yr note auction drew 1.810% and a weak 2.70x bid/cover (12-auction average 2.93x). Other metrics were also weak as indirect bidders took down 33.9% of the supply (12-auction average 37.1%) and direct bidders ended up with just 16.9% of the auction (12-auction average 23.1%). Primary dealers ended up with just more than 49% of the offering. Thursday's $16 bln 30-yr bond auction auction drew 2.980% and a slightly weaker than expected 2.53x bid/cover (12-auction average 2.59x) as both indirect (38.8%) and direct (15.5%) bidders provided support. Primary dealers ended up with just 45.7% of the supply.

The Week Ahead

Data begins to flow on Monday as retail sales, retail sales ex-auto (8:30), and business inventories (10) are released.

Tuesday will see just import/export data (8:30). Philly's Plosser will be in Stockholm, Sweden giving his outlook on the economy and monetary policy (2).

Data is heavy on Wednesday as the weekly MBA Mortgage Index (7), PPI, core PPI, Empire Manufacturing (8:30), net long-term TIC flows (9), industrial production, capacity utilization, and the NAHB Housing Market Index (10) cross the wires.  

Data remains heavy on Thursday as initial and continuing claims, CPI, core CPI, housing starts, building permits (8:30), and the Philly Fed (10) are due out. Philly's Plosser will be in Milan, Italy addressing his outlook on the economy and monetary policy (3:45); Dallas' Fisher will speak at the NABE Industry Conference, giving opening remarks on monetary policy (9); SF's Williams will be in Portland, OR discussing his economic outlook (19:15); Richmond's Lacker will be in Baltimore, MD speaking on his economic outlook (19:15).

Friday's data includes Michigan Sentiment (9:55) and leading indicators (10). Minny's Kocherlakota will be at a University of Chicago conference, joining a panel on 'The Future of Financial Regulation and Monetary Policy' (13:45).

There are no auctions of note.