Treasuries were weaker overnight ahead of heavy supply this week (bills, 2yr, 5yr, and 7yr auctions), and S&P 500 futures are down 19 points ahead of the open. The Treasury curve was 1 bps flatter overnight (2yr/10yr spread), and the curve has flattened 10 bps over the last week, mostly attributable to higher front-end yields. A Reuters article this morning highlights the challenges facing the European Central Bank (ECB) as it prepares to withdraw the extraordinary policy accommodation of the last several years. Market anticipation for a less accommodative ECB has pushed yields higher throughout the region, which can dampen the very inflation growth that the central bank has been trying to fuel. While Mario Draghi and other ECB leaders can attempt to mitigate this somewhat via forward guidance, they cannot control the spillover from higher U.S. rates. As we’ve noted previously, the reduced presence of central banks in the financial markets (QE) is potentially a major headwind for the global markets/economy in the coming months/years, and the Fed has chosen to be very gradual in its “quantitative tightening,” largely in an effort to minimize this risk.

Jason Haley
Managing Director, Investment Management Group

Date EventSurveyActualPriorRevised
2/21/2018MBA Mortgage Applications-4.10%
2/21/2018Markit US Manufacturing PMI55.555.5
2/21/2018Markit US Services PMI53.753.3
2/21/2018Markit US Composite PMI53.8
2/21/2018Revisions: Existing Home Sales
2/21/2018Existing Home Sales5.60m5.57m
2/21/2018Existing Home Sales MoM0.50%-3.60%
2/21/2018FOMC Meeting Minutes
2/22/2018Initial Jobless Claims230k230k
2/22/2018Continuing Claims1935k1942k
2/22/2018Bloomberg Economic Expectations52.5
2/22/2018Bloomberg Consumer Comfort57
2/22/2018Leading Index0.70%0.60%
2/22/2018Kansas City Fed Manf. Activity1816