Positive Data and Deluge of Treasury Supply Brings 10-Year Close to 3%
Prior Week Summary
It was a positive week for economic data led by strong retail sales, an increase in industrial production and a rebound in housing starts. The Commerce Department reported that retail sales advanced 0.6% in March, following a 0.1% decline in February. The report detailed that a majority of the 13 retail categories increased on a month-over-month basis, as sales of healthcare related items increased 1.4%, and auto sales gained 2.0% with notable strength in the cars and light truck categories.
In a separate report, factory output was reported to rise 0.1% in March following an upwardly revised 1.5% gain in February. The gain appears to be largely attributable to increases in utilities output and mining output. The increase in manufacturing output rose just 0.1% in March, following February’s outsized gain. Lastly, housing starts increased 2.5% in March after falling 3.3% in February. Multi-family housing starts gained an impressive 14.4%, while traditional single-family units fell 3.7%. The Midwest saw the largest increases in single-family housing starts, which grew at a stunning 37.7% for the month.
The strength of the economic data has brought the benchmark 10-year Treasury note yield ever closer to the psychologically important 3% barrier. As of this writing, the market is only 2 basis points away from 3%, the highest level for the 10-year note yield in the last five years.
The Look Forward
This week, the market will likely be looking forward to the first look at first quarter GDP on Friday, which economists currently expect to increase 2%. There is also a deluge of Treasury supply expected this week, with $32B in 2-year notes, $17B in 2-year Floating Rate notes, $35B in 5-year notes and $29B in 7-year notes on the way.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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