Bond Markets Swing on Data Even as Fed Touts a Policy Pause

(Bloomberg) — Treasuries traders have mostly bought into the view that the Federal Reserve has hit the pause button when it comes to interest-rate hikes. But that doesn’t mean the market is ignoring the economic data that may factor into the central bank’s calculus.

After data Thursday showed retail sales in December dropped the most since 2009, yields slid as money markets took out the few basis points of 2019 Fed tightening they had priced in just the day before. On Wednesday, consumer price figures for January had enough juice in them to push traders to build in a small prospect of rate increases this year.

The benchmark 10-year yield fell to as low as 2.64 percent Thursday, from 2.70 percent at the close the previous day. It’s been confined to a range between 2.62 percent and 2.74 percent this month. Share prices fell and the dollar initially retreated on the weak economic reading. Global yields sank as well, with 10-year U.K. yields touching an eight-month low of 1.12 percent. German bunds joined the rally.

“Data does matter to the market, because the Fed is going to be watching it closely,” said Scott Buchta, head of fixed-income strategy at Brean Capital LLC. “Yields have been very volatile within the range. Part of it is because the quants and algorithmic traders see the data and react right away.”

While the Thursday figures were from December, delayed due to the government shutdown, the concern is that it could indicate that the U.S. might be closer to the end of the current economic cycle, Ed Moya, chief market strategist at Oanda Corp., said in a note to clients. “Markets may remain very cautious until we see the January data,” he wrote.

Bloomberg

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya