Treasury prices are slightly higher this morning, with the belly (intermediate maturities) experiencing the biggest move. Domestic equity markets extended Friday’s losses in the overnight session, although S&P 500 futures have recovered somewhat from the lows (currently down 10 points). The U.S. budget will be back in the headlines this week with the current short-term funding bill expiring on Thursday. There is still a notable divide between both parties on a long-term budget and immigration policies, so current expectations are for another short-term extension.
The primary catalyst for the backup in long-end yields in recent weeks has been improved price/ wage inflation and global growth, followed somewhat by domestic deficit concerns and balance sheet reduction. The wage data from Friday’s jobs report was encouraging, with the year-over-year measure of average hourly earnings setting a new post-crisis high of 2.9% (and the prior month revised higher to 2.7%). The December Employment Cost Index (ECI) was released last week, and the year-over-year measure also matched a post-crisis high. Many Fed leaders prefer ECI because in includes bonuses and other non-compensation benefits. For consumer price growth, the Q4 2017 data rose to 1.9% on an annualized basis, just below the Fed’s 2% target. Consequently, market inflation expectations (TIPS breakeven yields) and term premiums for swaps and Treasuries have risen to 3-year highs. At the same time, fixed-income spreads remain at the tight end of a multi-year range for most sectors (i.e., fixed income demand still relatively robust). This week’s economic calendar will be less eventful from a data perspective, but there are several Fed leaders scheduled to speak over the next few days.
Managing Director, Investment Management Group
|02/05||Markit US Services PMI||53.3||53.3||53.3||—|
|02/05||Markit US Composite PMI||—||53.8||53.8||—|
|02/05||ISM Non-Manf. Composite||56.7||59.9||55.9||56|
|02/05-02/09||MBA Mortgage Foreclosures||—||—||1.23%||—|
|02/06||JOLTS Job Openings||5961||—||5879||—|
|02/07||MBA Mortgage Applications||—||—||-2.60%||—|
|02/08||Initial Jobless Claims||232k||—||230k||—|
|02/08||Bloomberg Feb. United States Economic Survey|
|02/08||Bloomberg Consumer Comfort||—||—||54.6||—|
|02/09||Wholesale Inventories MoM||0.20%||—||0.20%||—|
|02/09||Wholesale Trade Sales MoM||0.40%||—||1.50%||—|