Fear of Economic Calendar Infects Bonds

The strongest readings in months are expected from the CPI, PPI and retail sales reports.
Author:
Publish date:

Bond prices retreated on light volume today, preparing themselves for a potentially vicious slate of economic data next week.

The benchmark 10-year Treasury note ended down 7/32 at 100 28/32, lifting its yield 3 basis points to 6.379%. Shorter-maturity yields rose by similar amounts. The erstwhile benchmark 30-year Treasury bond fell 13/32 to 100 29/32, lifting its yield 3 basis points to 6.183%.

At the

Chicago Board of Trade

, the June

Treasury futures contract closed down 14/32 at 94 7/32.

Next week brings three key economic reports, as well as a handful of less-key-but-still-potentially-market-moving ones and economists are warning that they are likely to be unfriendly. Meaning that they will indicate that the economy is still growing too quickly for the

Fed's

comfort.

First up is February

retail sales

, on Tuesday. The preliminary consensus forecast is for hefty gains of 0.9% overall and 0.5% excluding autos. But auto sales surged 8% in February to a record pace, and so some estimates of the overall gain are far north of the average. Also, rising gasoline prices will likely goose both overall and ex-auto sales, since they are not adjusted for inflation.

Thursday brings the

Producer Price Index

for February. The overall PPI should reflect a 3.9% rise in energy prices, while the core PPI, which excludes food and energy, will reflect a 5% increase in tobacco prices, according to

MCM Moneywatch

. The firm is predicting a 0.6% increase in the overall PPI and a 0.3% increase in the core PPI. Those would be the biggest increases in five months.

Finally, there's the February

Consumer Price Index

on Friday. It too will be boosted by energy and tobacco prices, but to a lesser degree, since the CPI also includes service prices. New airfare surcharges could also boost the core CPI,

Barclays Capital

warns.

The bond market is "just trading in response to what equities are doing, but I think that'll stop next week," said Jim Kochan, senior bond market strategist at

Robert W. Baird

in Milwaukee. "It'll be back to basics. There's a lot of economic data and a lot of it will look really disturbing. It'll probably set the market up for a bit of a selloff into the FOMC meeting." The

Federal Open Market Committee's

March 21 meeting is pretty universally expected to produce another hike in the

fed funds rate

, from 5.75% to 6%.

Bonds are vulnerable, Kochan added, because while the economic data may call for an even larger rate hike, Fed officials in their public comments have not sufficiently prepared the markets for such a move. "You get to a point where the market wonders whether the Fed's been too timid," and moves interest rates higher on its own. On the other hand, Kochan said, these "bond vigilantes seem to have fallen asleep ever since the yield curve inverted."

It's also vulnerable, a trader added, because there is great unwillingness to be short the bond market, for fear that another pullback in stock prices will propel the bond market higher. No shorts means no one to buy when the market goes down.

Economic Indicators

There were no economic releases today.

Currency and Commodities

The dollar weakened against the yen and gained against the euro. It lately was worth 106.20 yen, down from 106.65. The euro was worth $0.9635, down from $0.9662. For more on currencies, please take a look at

TSC's

new

Currency Watch column.

Crude oil for April delivery at the

New York Mercantile Exchange

rose to $31.75 a barrel from $31.69.

The

Bridge Commodity Research Bureau Index

fell to 214.22 from 214.84.

Gold for April delivery at the

Comex

fell to $289.90 an ounce from $292.70.