Friday, February 17, 2017
Treasuries Push Back Against March Hike Buzz
Eurodollar and Treasury futures recovered yesterday following 5 days of lower price action. Possibly encouraged that top Fed officials Fischer and Dudley had not stressed likelihood for a March policy response after the market had priced as much as a 40% chance of that prospect, recovering price action stretched across the curve. The Treasury 5’s-30 curve steepened by 3 bps while the Eurodollar futures yield curve flattened by 5.25 bps throughout the first 11 quarterly contracts and the Fed Funds futures yield curve flattened by 4.5 bps through 29 monthly contracts.
Volume was moderate and open interest climbed in ED’s and FF (152K and 24K respectively) while open interest was mixed in Treasuries. All of this suggests a rather bullish session sparking some follow through overnight and this morning.
With only the US Conference Board release of Leading Economic Indicators on the data front and Pres. Trump traveling, there is reason to believe today may be a quiet session. Keep an eye however on equities however as the Dow had 10 new highs without a pause while the S&P 500 collected 9 and also made a double top at 2351.30-31. Both Index formed a bearish hanging man that if confirmed today may point to a decent pull-back.
Of course a weaker equity market would put Treasuries in a move valued position and we might expect further recovery from the 5 days of selling. Otherwise, the bullish recovery could be confirmed with prices holding current early morning gains (TU 108-14.25; FV 117-31; TY 124-25+; WN 161-17; EDH8 98.355; FFM7 99.15). A lower close today would be necessary to discount the bullish implications of recent trade.