Treasuries rallied overnight in Asian markets after Chinese officials denied a Bloomberg article that suggested the country was planning on reducing its $1+ trillion UST portfolio, according to anonymous sources. However, Treasury prices have reversed course this morning following the release of the minutes from the December ECB meeting. The initial headlines suggest a more hawkish tone from the central bank, including some discussion of altering its current forward guidance for future asset purchases in early 2018. New York Fed President Bill Dudley will present his economic outlook this afternoon. Dudley has been one of the most influential Fed leaders (and perhaps Chair Yellen’s closest ally) for several years, but with Yellen stepping down in the coming weeks and his own retirement in a few months, market participants may assign less weight to his comments/guidance.

The recent increase in long-end Treasury yields coincides with an increase in market inflation expectations. Following the successful passage of tax reform in mid-December, TIPS breakeven yields (common measure of market inflation expectations) are up 15 bps. Over that same timeframe, the 2-year/10-year Treasury yield spread is 7 bps higher (steeper).

Jason Haley
Managing Director, Investment Management Group

01/08Consumer Credit$18.000b$27.951b$20.519b$20.532b
01/09NFIB Small Business Optimism107.8104.9107.5
01/09JOLTS Job Openings6025587959965925
01/10MBA Mortgage Applications8.30%0.70%-1.60%
01/10Import Price Index MoM0.40%0.10%0.70%0.80%
01/10Import Price Index ex Petroleum MoM0.10%-0.20%0.10%0.20%
01/10Import Price Index YoY3.10%3.00%3.10%3.30%
01/10Export Price Index MoM0.30%-0.10%0.50%
01/10Export Price Index YoY2.60%3.10%
01/10Wholesale Inventories MoM0.70%0.80%0.70%
01/10Wholesale Trade Sales MoM0.60%1.50%0.70%0.80%
01/11Revisions: Philadelphia Fed Manufacturing Index    
01/11PPI Final Demand MoM0.20%-0.10%0.40%
01/11PPI Ex Food and Energy MoM0.20%-0.10%0.30%
01/11PPI Ex Food, Energy, Trade MoM0.20%0.10%0.40%
01/11PPI Final Demand YoY3.00%2.60%3.10%
01/11PPI Ex Food and Energy YoY2.50%2.30%2.40%
01/11PPI Ex Food, Energy, Trade YoY2.30%2.40%
01/11Initial Jobless Claims245k261k250k
01/11Continuing Claims1920k1867k1914k1902k
01/11U.S. Economic Forecasts: Bloomberg Monthly Survey (Table)    
01/11Bloomberg Consumer Comfort51.8
01/11Monthly Budget Statement-$26.0b-$27.3b
01/12CPI MoM0.10%0.40%
01/12CPI Ex Food and Energy MoM0.20%0.10%
01/12CPI YoY2.10%2.20%
01/12CPI Ex Food and Energy YoY1.70%1.70%
01/12CPI Index NSA246.372246.669
01/12CPI Core Index SA253.724
01/12Retail Sales Advance MoM0.50%0.80%
01/12Retail Sales Ex Auto MoM0.40%1.00%
01/12Retail Sales Ex Auto and Gas0.40%0.80%
01/12Retail Sales Control Group0.40%0.80%
01/12Real Avg Weekly Earnings YoY0.80%
01/12Real Avg Hourly Earning YoY0.20%
01/12Business Inventories0.40%-0.10%