After A Strong Close Post-Fed Yesterday, Bond Weakness Has U.S. Benchmarks On Their Backfoot Again

March 18, 2021 09:55 AM
Yesterday, Fed Chair Powell deflected 2 questions on the Supplementary Leverage Ratio (SLR)
The Bank of England maintained a dovish tone this morning
Philly Fed Manufacturing blew the doors off at 51.8 versus 23.0
Equity Index futures

Equity Index futures

Wednesday's Close

E-mini S&P 500 Futures (June): Settled at 3963.50, up 11.00

E-mini Nasdaq-100 Futures (June): Settled at 13,189.00, up 47.75

After a strong close post-Fed yesterday, U.S. benchmarks are again on their backfoot due to Bond weakness. 

The Treasury complex did respond to the Fed’s emphasis on underemployment and how their expectations of only a meager increase in Core PCE to 2.0-2.2% through 2023 will keep policy accommodative. However, Fed Chair Powell deflected 2 questions on the Supplementary Leverage Ratio (SLR), saying they’ll address the March 31st exemption next week. 

It’s likely that banks are and have been unloading Treasuries in fear the Fed won’t extend the tool. 

Through yesterday’s press conference, it was the shorter-duration Treasuries that responded to the Fed’s dovishness, whereas those further down the curve rebounded to a relatively lesser degree. A resumption in such weakness overnight was aided by Norway’s central bank. Although they kept rates unchanged, they announced plans to hike them later this year. 

The Bank of England maintained a dovish tone this morning, in line with that from the Fed. The Bank of Japan is on deck tonight, and headlines point to the central bank announcing a wider target rate, another factor weighing on the Treasury complex.

From the economic calendar, Philly Fed Manufacturing blew the doors off at 51.8 versus 23.0. After the worst conditions one year ago since 1980, these are the best conditions since 1973. However, Initial Jobless Claims were much higher than expected at 770k versus 700k and last week was revised higher by 13k.

After the close, Nike and FedEx report earnings.

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