Wednesday, February 19, 2014
If Treasuries Fail to Rally on Weak Data...
There has been nothing but bullish Treasury news for weeks. It becomes increasingly difficult to play off weak economic reports as merely a function of severe winter weather. However, we are charged with dealing with what is in front of us and the weaker data recently including today’s housing report suggests a less than stunning start to 2014. Why then is TYH4 (March 10yr Future) not above the early Feb high of 126-16, representing an on-the-run cash 10yr yield closer to 2.58% than current 2.68%?
Stanford's John Taylor yesterday indicated that his formula (rule) suggests the Fed should refrain from any additional security purchases, rather than continue its 'policy path' of tapering by $10B at each meeting. Yet, a majority still believes the Fed will follow through with the policy path for tapering described repeatedly by Fed officials. As such, additional accommodations are being made available and the certainty of their economic need remains in question.
If we are at ground zero seeing today's housing number, we should expect higher ED and Treasury prices. The absence of that might suggest we have already priced enough (too much) and that any data more consistent with trend-like economic growth will bring greater selling pressure.