The big question for bond traders in the week ahead is whether the 10-year Treasury note will break out of it’s current narrow range. At 9:30 a.m. Monday, it was at 2.3%, near where it traded the entire previous week.
There is a slew of economic news due, capped off on Friday with the July jobs report, plus a lot of Fed speakers lining up.
Ian Lyngen and Aaron Kohli of BMO Capital Markets write:
In the week ahead, the combination of NFP/AHE and the array of other economic data will keep the emphasis on the fundamentals as the Treasury market has found something of an equilibrium point between the competing forces of an uncertain Fed and a bearish outlook for EGBs [European Government Bonds]. We’re content to hold onto our medium-term bullish take on Treasuries despite last week’s choppy price action, if for no other reason than the 2.30% level in 10-year yields continues to prove difficult to sustainably trade through. All else being equal, one might think that a >2.50% GDP print would warrant 10-year yields at least in a comparable range and the fact that Treasuries immediately rallied in the wake of the release illustrates that investors’ focus is elsewhere.
David Ader, chief macro strategist for Informa Financial Intelligence, took a short-term bearish view going into this week’s onslought of economic data and Fedspeak. He wrote on Friday he is adopting “a bit of a bearish tilt,” although he isn’t bearish long-term, expecting rates to stay low long term, mainly due to Washington antics. He advises bond traders, “be nimble.”
Martin Mitchell of the Mitchell Market Report sums up the data due this week:
The schedule culminates with the July employment report on Friday but also includes a number of other important releases. Starting today, we will get July Chicago PMI (60 est) at 9:45am, June pending home sales (+1.0% est) at 10:00am, and the Dallas Fed mfg index (13 est) at 10:30am. Tuesday’s schedule includes data on personal income and spending, the Fed favorite inflation gauge – June PCE, mfg ISM, construction spending, and vehicle sales. ADP will report on private payrolls on Wednesday. Thursday will bring the weekly claims, services PMI, services ISM, factory orders, and the revision to durable goods orders.
The iShares 20+ Year Treasury Bond ETF (TLT) fell 1.4% in the past week, but is up 5.3% this year on a total return basis, according to Morningstar. It traded lower Monday morning at 123.60.