Wednesday, May 13, 2015

Treasuries May be Sicker than They Look

All is not well in Treasuries, or at least that is what price action following the weaker than expected Retail Sales report seems to be telling us.  TYM advanced from an opening price of 127-10+ when that report was released to 127-21+ before pulling back to 127-18+ to finish that initial 10 minutes after the number release.  Such price action should well have been expected on the back of weaker than expected Retail Sales data.  However, the pull-back over the preceding 30 minutes was greater than we should have expected and tends to discount the bullish implications of the earlier advance.

It is difficult to say with conviction what variable(s) have driven the pull-back from the earlier gains, but we can say that it should not have happened if the contract was truly ready to make an extended advance.  My best guess would be that there is selling pressure in front of the auction later today, but the balance of the curve seems to be experiencing similar selling pressure, so there may be greater forces at play - mainly a continued realignment of positions following Fed Chair Yellen’s assertions that bond prices are high.    

I would not put a world of faith on the price action over the last 30 minutes or so, but I would advise additional vigilance as this price action is inconsistent with most recent data.   

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