Leader Week in Review
April 10th, 2015
Economic Data Releases:
Yields increased across the curve as the 10 year and 30 year Treasury auctions disappointed in a light week for economic data. Demand from foreign central banks, as proxied by indirect bidders, dropped by roughly half from the last auction. Credit spreads were mixed for the week - Investment Grade spreads increased slightly while High Yield spreads tightened. One reason for the tightening in High Yield is the larger relative weight of the energy sector in the High Yield index; there was a significant drop in High Yield energy spreads as Oil prices held above the $50 level last week (see chart 1).
FOMC minutes released last week highlighted the growing debate within the Fed over the timing of the first interest rate hike. We have stated previously that the pace of rate hikes is more important than the initial lift-off date and the internal debate is a return to normal central bank operation and normalized monetary policy. As we grow closer to the lift-off date, we expect Treasury market volatility to pick-up, which has been occurring (see chart2.) The MOVE Index, like the VIX Index but for Treasuries, is at an elevated level from the last year and closer to the levels from the "taper tantrum" in 2013. Could we see a similar sell-off in Treasuries this year when the first rate hike is announced? We think it's not out of the question.
Upcoming Economic Data Releases: