Bonds opened in the red as the market prepared for yesterday morning’s supply announcement for next week. The Treasury announced $75 billion in 3-, 10- and 30-year supply, a record for one week’s issuance of those bonds and in line with expectations.
Treasuries recovered after the ISM (Non-Manufacturing Index) registered 46.4 in July, well below the 48 expected. Expectations were elevated after July’s manufacturing index surprised to the upside and the disappointment brought Treasuries into positive territory.
But the rally didn’t last as comments from former Fed official Laurence Meyer hinted at an as scheduled stop to the Fed’s Treasury Purchase program in September. Few in the market were looking for any meaningful expansion of the program, although some think that it would make sense to stretch it to the end of the year, and make it consistent with the MBS purchase program. I personally am indifferent. It most likely wouldn’t make an impact either way. I think today’s reaction was a little exaggerated on account of the morning’s volatility. I also will only believe for sure that they are done when they actually stop buying.
The Treasury announced that it will increase TIPS issuance next year and is also open to replacing the 20-year with a 30-year, which was last issued in 2001. This makes sense considering the Treasury is issuing gobs of the nominal 30-year so there is plenty of interest among buyers. Plus it will give the market a new data point on the breakeven curve. The proxy for inflation expectations currently ends at 20 years. TIPS outperformed nominal Treasuries on the news as 10-year breakeven’s widened to 193 bps.
Cliff J. Reynolds Jr., Investment Analyst
Treasuries recovered after the ISM (Non-Manufacturing Index) registered 46.4 in July, well below the 48 expected. Expectations were elevated after July’s manufacturing index surprised to the upside and the disappointment brought Treasuries into positive territory.
But the rally didn’t last as comments from former Fed official Laurence Meyer hinted at an as scheduled stop to the Fed’s Treasury Purchase program in September. Few in the market were looking for any meaningful expansion of the program, although some think that it would make sense to stretch it to the end of the year, and make it consistent with the MBS purchase program. I personally am indifferent. It most likely wouldn’t make an impact either way. I think today’s reaction was a little exaggerated on account of the morning’s volatility. I also will only believe for sure that they are done when they actually stop buying.
The Treasury announced that it will increase TIPS issuance next year and is also open to replacing the 20-year with a 30-year, which was last issued in 2001. This makes sense considering the Treasury is issuing gobs of the nominal 30-year so there is plenty of interest among buyers. Plus it will give the market a new data point on the breakeven curve. The proxy for inflation expectations currently ends at 20 years. TIPS outperformed nominal Treasuries on the news as 10-year breakeven’s widened to 193 bps.
Cliff J. Reynolds Jr., Investment Analyst
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