The U.S. Treasury auctioned off $35 billion in 5-year notes today. The yield climbed to 2.658%. In trading the 5-year Treasury closed at 2.68% today. That yield is up 23 basis points in the last month. The yield on the 10-year Treasury note closed at 2.94%, up 5 basis points on the day,
Not a good way to begin if you have to sell $441 billion in net debt in the first quarter of 2018. This morning the U.S. Treasury sold $96 billion of short-term bills at yields unseen since 2008.
With the U.S. financial markets closed for Presidents’ Day and with markets in China and Hong Kong still closed for the Lunar New Year, it’s a slow news day for stocks and bonds today. But get ready for the action to resume on Tuesday with much of the attention focused on the U.S. Treasury market.
There’s an especially heavy schedule of speeches from the Federal Reserve this week–with U.S. stock markets hanging on every word. With the next Fed meeting scheduled for March 21–and with everyone expecting an interest rate increase from the U.S. central bank–this week is one of the Fed’s last big chances to direct expectations before the Fed’s March 21 meeting. The Fed’s quiet period begins the second Saturday before a meeting of the Fed’s Open Market Committee so the “no public comments” period for this meeting begins on March 10.
As of yesterday the Standard & Poor’s 500 stock index has climbed 5.8% in the last five trading sessions. That recouped much of the 9.03% drop (not quite an official correction of 10% or more) from January 26 through Februry 8. Which, of course, raises the question of what lies ahead–A rapid climb back through the old high of 2872.87 to new records (a classic V-recovery) or a move back to near the old high, followed by a failure at that level and a deeper correction of, say, 15%?
No index here with the headline clout of yesterday’s CPI (Consumer Price Index) but the message from three indexes today reinforces the story in yesterday’s CPI data: inflation pressures are increasing. The Empire State Manufacturing prices-paid index published by the Federal Reserve Bank of New York climbed 12.4 points to 48.6 in February. That’s the highest level since 2012.
Headline CPI (Consumer Price Index) inflation climbed 0.5% in January, the Labor Department announced today. That was above the 0.4% increase expected by economists surveyed by Briefing.com. Core CPI, which excludes more volatile food and energy prices, climbed 0.3% in January. Economists surveyed by Briefing.com had expected a 0.2% increase.
Today Goldman Sachs projected that the yield on the Treasury 10-year note will climb as high as 3.5% in the next six months. In addition, the Wall Street giant told Bloomberg, the U.S. Federal Reserve will raise rates four times in 2018. The yield on the 10-year Treasury finished at 2.85% yesterday after trading as high as 2.89%, a four-year high.
The Standard & Poor’s 500 and the Dow Jones Industrial Average both finished in the green today, up 1.39% and 1.70%, respectively, after having held off a bout of selling around 3:46 p.m. New York time. Volatility also made progress on returning to normal.
The big, market-shaping news will be the CPI (Consumer Price Index) inflation report before the market opens on Wednesday. Since this decline began on February 2, the driving fear has that the stimulus in the Tax Cuts and Jobs Act, first, and now the $300 billion in new higher spending in last week’s legislation to fund the government for the next two years, and the still pending $200 billion in new money from infrastructure would kick off higher inflation in an economy that may (and this is a key area of disagreement among economists) be already running at full capacity.
Once upon a time, before the U.S. stock market moved into an actual correction and before bond yields spiked, the Federal Reserve was clearly on track to raise short-term interest rates at its March 21 meeting. The debate in the financial markets was about whether the Fed would increase its benchmark interest rate three or four times in 2018. But then we got tax cuts piled on top of spending increases.
Notice that the signing of a bill early this morning to keep the government open and to fund operations for two years hasn’t resulted in a serious rally in either stocks or bonds. And mind you, this deal also “solves” the debt ceiling crisis by suspending the debt ceiling until March 2019. That passes for statesman-like foresight in Washington these days and this certainly counts as good news. So why no big upside move on these events?
