February 21th Headlines

Treasury prices are lower across the curve today with several headlines at the forefront. On the negative side (bullish for Treasuries), initial February PMI data from Europe and Japan was disappointing, particularly for manufacturing. In fact, Eurozone manufacturing PMI fell into contraction territory (49.2) for the first time in 68 months; however, services PMI was a bit better than expected for Germany and France. On the positive side (bearish for Treasuries), reports suggest that U.S. and Chinese officials are moving closer to a series of memorandums of understanding (MOU) that could form the basis of a larger long-term agreement. Perhaps more importantly as it relates to today’s sell-off in Treasuries, yesterday’s FOMC minutes were less dovish than many were expecting, particularly as it relates to interest rate policy.
The January 30 official statement suggested the FOMC would be more “patient” in assessing the need for further rate hikes amid heightened market volatility and “muted” inflation pressures. The minutes of that meeting further clarified that “many participants observed that if uncertainty abated, the Committee would need to reassess the characterization of monetary policy as ‘patient.’” In other words, several Fed leaders are still considering additional rate hikes in the current cycle, particularly if volatility subsides. The balance sheet normalization discussion offered no specifics with regards to the ultimate size of the Fed’s balance sheet or level of reserves. The minutes hinted that more details could be provided at future meeting, perhaps March or May. Of note for the MBS market, participants affirmed that “it would be appropriate once asset redemptions end to reinvest most, if not all, principal payments received from agency MBS into Treasury securities.” Several Fed leaders has suggested for some time a desire to transition the Fed’s asset holdings to Treasuries exclusively, and the January 30 minutes suggest that most everyone at the Fed agrees on that front. However, nothing has been finalized at this point. Jason Haley
Managing Director, Investment Management Group

Date	Event	Surv(M)	Actual	Prior	Revised
2/19/2019	NAHB Housing Market Index	59	62	58	—
2/20/2019	MBA Mortgage Applications	—	3.60%	-3.70%	-6.90%
2/21/2019	FOMC Meeting Minutes	—	—	—	—
2/22/2019	FOMC Minutes Released Live on Web
2/23/2019	Philadelphia Fed Business Outlook	14	-4.1	17	—
2/24/2019	Initial Jobless Claims	228k	216k	239k	—
2/25/2019	Continuing Claims	1743k	1725k	1773k	1780k
2/26/2019	Durable Goods Orders	1.70%	1.20%	0.70%	1.00%
2/27/2019	Durables Ex Transportation	0.30%	0.10%	-0.40%	-0.20%
2/28/2019	Cap Goods Orders Nondef Ex Air	0.20%	-0.70%	-0.60%	-1.00%
3/1/2019	Cap Goods Ship Nondef Ex Air	0.00%	0.50%	-0.20%	—
3/2/2019	Bloomberg Consumer Comfort	—	—	60	—
3/3/2019	Bloomberg Economic Expectations	—	—	44.5	—
3/4/2019	Markit US Manufacturing PMI	54.8	—	54.9	—
3/5/2019	Markit US Services PMI	54.3	—	54.2	—
3/6/2019	Markit US Composite PMI	—	—	54.4	—
3/7/2019	Leading Index	0.10%	—	-0.10%	—
3/8/2019	Revisions: Existing Home Sales
3/9/2019	Existing Home Sales	5.00m	—	4.99m	—
3/10/2019	Existing Home Sales MoM	0.20%	—	-6.40%	—