Bond Prices Quietly Mixed as Stocks Recover; Durables Surge

US Treasury prices worked mostly lower into the open Friday before sneaking back some ground in light activity, with the two-year leading while the long bond dragged.

The market slumped to the lows on a big upside surprise on the durable goods then choppily trimmed losses while keeping watch on equities for any further tech, tariff and or trade-related fallout.

Traders and financial firms have boosted growth and rate-hike expectations on the latest data and in the wake of Wednesday’s Federal Open Market Committee (FOMC) statement.

The 30-year yield was stalled near 3.075% from an early 3.1012% high, overnight 3.036% low, and 3.067% close Thursday. The 10-year yield was little-changed near 2.833% from a 2.8513% high, 2.7928% low and 2.832% close. The five-year yield was stuck near 2.622% from a 2.6435% high, 2.584% low and 2.632% Thursday. The two-year yield streamed higher recently, near 2.28% against a 2.3037% high, 2.2538% low and 2.287% close.

The curve trade steepened with the two- and 10-year yield spread near 56 from near 55 while the five- and 30-year yield differential widened to near45.3 from 43.5.

S&P chief economist, Beth Ann Bovino wrote the firm was looking for four rate hikes in 2018, up from three, because of strong job gains, a solid round of Q4 economic data and the FOMC statement. Bovino noted that in “dropping the reference to low near-term inflation” it appeared that the Fed’s concerns “that the shortfall in inflation will be persistent” have eased.

The market is awaiting firm news on congressional passage of the $1.3 billion government spending bill, which was seen as a done deal but had that conviction tempered when President Trump tweeted threats of a veto.

Wedbush head of equities Ian Winer worried over the hot topic of short-term funding, writing that
funding markets worldwide were starting to feel the heat from soaring dollar Libor rates. He noted that the recent surge in the “key global short-term financing indicator” perhaps has “a mostly technical explanation,” meaning it’s not necessarily “flashing warning signals” as was the case “during the credit crunch or the European sovereign debt crisis.” However, he added a key proxy for “bank borrowing costs,” Libor over the overnight index swap (OIS) “has doubled since January.”

Overnight bonds had been boosted as global equities melted down following Thursday’s 724 point plunge in the Dow following the latest in tariff threats. China was quick to retaliate and announced reciprocal levies of $3 billion, though the European Union council held off after the region was exempted from punishment (along with Canada, Mexico, Australia, Korea, and Brazil).

Data showed February durable goods orders jumped 3.1% after falling a revised 3.5% in January (was -3.7%) on a larger than expected defense and transportation boost. February new home sales fell 0.6% to 618,000, just shy of the 620,000 consensus from the 4.7% January drop to 622,000 (revised from 593,000). The housing data were backed by strong upward revisions.

Fed speakers returned to the stage Friday with Atlanta President Raphael Bostic, Minneapolis’ Neel Kashkari and Dallas’ Robert Kaplan having all made appearances.

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