Thursday, August 20, 2015
Treasuries Firm Following FOMC Minutes
Treasuries did find ‘suggest(ed) further gains overnight’, with the long end outperforming and the Treasury curve flattening (2’s-30’s by 4.5 bps to 211). Otherwise, the dollar is softer, gold is higher and equities are lower.
FOMC July minutes did present a slightly softer tone than anticipated with recognition that NARU might be still lower than the latest reduced target-influencing levels projected by the Fed. Importantly, ‘almost all’ members needed to see more evidence before they felt ‘reasonably confident’ that inflation would return to the Committee’s longer-run objective over the medium-term - a stated condition for raising rates. The Fed staff too revised lower their inflation forecast and lowered ‘medium-term’ estimates for productivity and potential growth.
Employment claims and Leading Indicators will provide distraction this morning from the FOMC Minutes and additional housing data (Existing Home Sales) will offer some clues as to breath of strengthening in that sector. Finally, the Philadelphia Fed Business Outlook Survey will be watched closely as it follows a very weak Empire report last week.