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Bond traders set for a great summer

By Dwight Johnston on June 19, 2017 at 9:42 am

A global lift

Dow futures are up about 80 points in pre-opening trading, and the buyers are back for the NASDAQ with a .7% early gain in futures. The global stock market is getting a lift from positive economic news from Japan and the results of the French parliamentary elections. Macron’s party won in a landslide. Now he has to deliver on promised reforms.

Bond market snapshot

Bond prices are slightly higher to start the day. Bond traders are simply convinced the summer will bring more weak economic data, proving Yellen’s economic confidence to be misplaced. They also expect that toward the end of the summer two things will be clear. First, Congress will be no closer to tax reform than it was at the beginning of the year. The second thing bond traders expect is a fierce last-second battle to get the debt ceiling approved before the U.S. runs out of money. The turmoil in D.C. looks like a safer bet than betting against the economy.

Bond traders are also looking forward to this week’s slate of Fed official speeches. These speeches should be ignored as usual, given we just had a Fed meeting and a Yellen press conference, but bond traders are looking for the eight Fed speakers to do what Yellen did not do. Yellen was surprisingly unconcerned about recent weak economic data and confident of a rebound in the numbers. She was not the old cautious Janet everyone expected.

Traders are expecting most of the speakers this week to express more caution about the current data and more doubts about the future of the economy and the likely path of Fed policy. Late Friday we already one Fed official speak out. Dallas Fed President Kaplan struck a cautious tone, sounding just like Yellen did a few months ago. Traders are looking for more of this from the other speakers.

Economic reports calendar

There is little on the economic calendar this week. Only the home sales numbers later in the week will be of any interest. New Home Sales are expected to rebound from an aberrantly weak April report. Existing Home Sales are also expected to rise but still constrained by the lack of supply.

Opening market reads

  • The 2-year is 1.32%
  • The 5-year is 1.74%
  • The 10-year is up 3/32s to yield 2.15%
  • The 30-year bond is higher by 7/32s to yield 2.77%
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