MAY 15, 2017
After selling off to absorb $52 billion of notes and bonds in the Treasury’s quarterly refunding the rates, the market rallied to close 1 bps lower on the week, at 2.33%. Helping this move was soft data for Consumer Prices on Friday, +1.9% y/y ex food & energy, a reading below 2% for the first time in 1 ½ years.
Earlier in the week, Retail Sales showed a +0.4% gain, a nice recovery from March’s -0.2% but not as much as was expected.
Thursday saw the sale of the SBA 504 program’s May debentures priced in line with expectations.
$17,713,000 2017-10C @ 2.33%, + 41 bps to Treasuries
$361,901,000 2017-20E @ 2.88%, + 49 bpw to Treasuries
While the number of additional interest rate hikes this year may be in question, the planned reduction of the Fed’s balance sheet seems to be drawing more attention. Discontinuation of reinvestment from portfolio proceeds would remove a significant buyer from the market and could result in more pressure on rates. This condition is not limited to the U.S., as the Bank of Japan also holds $4.4 trillion of its sovereign debt and these totals are exceeded only by the European Central Bank’s holding of $4.5 trillion. Should the global economy recover in sync, central bank buying would no longer be present.
Note – Excerpted from original at https://www.eaglecompliance504.com/weekly-market-commentary.html