Overnight Treasury Weakness Brings Wednesday's Benchmark Rally To A Halt

February 25, 2021 09:45 AM
The 10-year Treasury yield hit 1.466%, the highest in exactly a year
The German 10-year Bund hit the highest level since March 20th of last year
The second look at Q4 U.S. GDP is expected to improve from 4.0% to 4.2%
Equity Index futures

Equity Index futures

Wednesday's Close

E-mini S&P 500 Futures (March): Settled at 3922.50, up 44.50

E-mini Nasdaq-100 Futures (March): Settled at 13,302, up 110.00

U.S. benchmarks surged in the second half yesterday. For the Dow, it was to a fresh record and for the Nasdaq, it was a rebound to settle above a crucial level of technical support. The momentum carried into the evening hours, but weakness in the Treasury space overnight halted the rally, putting stocks once again on their backfoot ahead of the opening bell. 

The 10-year Treasury yield hit 1.466%, the highest in exactly a year as the March 10-year futures contract achieved our downside target of 134.5. The resilience of investors to hold exorbitantly valued tech stocks versus risk-free return will be tested again through today’s open. 

Investors could look to U.S. Dollar weakness this morning as a supportive factor. However, this comes on the heels of better-than-expected Eurozone Confidence and Sentiment data. Such has also brought a tailwind to rates globally; the German 10-year Bund hit the highest level since March 20th of last year.

From the U.S., the second look at Q4 GDP is expected to improve from 4.0% to 4.2%. Also, amid a busy morning, Durable Goods, Jobless Claims, and Atlanta Fed President Raphael Bostic all hit the tape at 7:30 a.m. CT. 

It goes unsaid that much stronger-than-expected data will continue to lift rates, however, we also must wonder how much of a beat is already priced in given the recent string of better-than-expected economic activity. 

Pending Home Sales came due at 9:00 a.m. CT, Fed Governor Randall Quarles speaks at 10:10 a.m. CT, Raphael Bostic again at 11:00 a.m. CT, and NY Fed President John Williams is expected at 2:00 p.m. CT.

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