Durable Goods orders came in at 3.6% (3.0% expected), Durables Ex Transportation was 0.7% (0% expected) and Cap Goods Orders Nondefense Ex Air was 1.1% (0.5% expected). The House Price Index rose 0.7% MoM (1.1% expected) while the S&P /CS rose 1.72% MoM (1.2% expected) and 12.05% YoY (10.6% expected). Later this morning the Richmond Fed Index, New Home Sales and Consumer Confidence will be released. At 11:00 AM there is a UST buyback in the 2/36-5/43 sector.
Overnight, Asian accounts were better sellers of Treasuries to start the session, however after more repo related negative headlines in China drove stocks lower Treasuries caught a small bid. In London the flows were more two way with Asia continuing to sell but, unlike Monday, there were accounts interested in taking the other side. In the U.S., Treasuries opened higher before the economic data came out better than expected. Currently 10-Year notes are flat to lower while MBS prices are up (4+ tics tighter to duration hedges) which is the first time in awhile that MBS have outperformed. This afternoon there is a n auction of $35 billion 2-Year notes, it will be interesting to see how this is received as yields are up near the highest level since 2011. Given the Fed's rate forecast and the lackluster economy, a solid auction would be an indicator that the cold shower bonds took was 100% QE related (this writer's belief) as opposed to a true recovery driven sell-off.
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