Treasuries “Whipsaw” on Reports, Expectations

This past week has been pretty volatile for Treasuries. Last Friday was technically a holiday but trading still occurred. The 10 year T jumped 7 bps up to 2.39% as investors focused on (1) The progress of the proposed tax bill, ie. an increased supply of Treasuries next year due to expanding budget deficits and (2) An updated European GDP forecast indicating robust growth and increasing the possibility of an earlier than expected end to quantitative easing over there. Then Tuesday’s PPI numbers came in much higher than expected (0.4% vs 0.1%) indicating strengthening inflation. However, lower than expected growth numbers from China brought up global growth concerns and yields didn’t rise as much as they should have (however the 10 year hit 2.41% yesterday morning). Today’s CPI numbers were softer than expected, but still strong enough to add certainty to the widely expected December rate increase by the Fed. Note that the Fed’s preferred gauge of inflation, the PCE, is still under the stated target of 2.0%, the next release is Nov 30. The soft CPI and statements by some senators against the tax bill rallied yields down today back to 2.32%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners