(Bloomberg) -- For bond traders, the challenge of gauging the outlook for U.S. growth and yields is only growing as the partial government shutdown crimps the flow of economic data and statistics on market positioning.
Ten-year Treasury yields appear to be settling into a range after rising this week for the first time since mid-December. The market is now pricing in little movement this year by the Fed, after officials’ calming pronouncements that they’d be patient about adjusting policy. Expectations have swung since early January, when bets were building that the central bank’s next step would be a cut.
Amid a dearth of top tier-data -- some delayed with President Donald Trump and Democratic Congressional leaders at a standoff over funding -- and little supply ahead, global events and Fedspeak may drive bond prices. The fate of trade talks between the U.S. and China and Brexit developments are also on traders’ radar. Among key economic data scheduled for next week that traders may not get: retail sales and housing starts.
“We have heard a lot from the Fed, so we have a better handle on their position” on monetary policy, said Brian Edmonds, head of interest-rate trading at Cantor Fitzgerald in New York. “But trying to get a handle on whether the economy is slowing or speeding up is going to be a little more difficult.”
Macroeconomic Advisers by IHS Markit lowered its forecasts for fourth- and first-quarter growth, each by 0.1 percentage point, on the assumption the shutdown lasts three weeks.
Michael Franzese, head of fixed-income trading at broker-dealer MCAP LLC, says with potential knock-on effects from the shutdown and global risks, investors are only making short-term rates wagers.
“There are a lot of things hanging in the balance now,” Franzese said. “So investors aren’t making long-term bets.”
The closures since Dec. 22 have also made it harder to assess speculators’ bias in Treasuries. That’s because the U.S. Commodity Futures Trading Commission has been affected, with no positioning data released since Dec. 21.
Those figures covered the week through Dec. 18, when the 10-year note yielded 2.82 percent, compared with 2.7 percent now. In that pre-shutdown update, hedge funds and other large speculators were net bearish 10-year Treasuries, although they’d trimmed those bets from a record.
Nils Overdahl, a senior portfolio manager at New Century Advisors, which oversees about $2.2 billion, said he’s struggling to fill in the gaps left by the CFTC data.
“We are looking at other sentiment indicators and trying to get positioning reports from banks,” he said. “But even then, you have to take this information with a grain of salt.”
What to Watch in the Coming Week
- Fedspeak will include Chicago Fed President Charles Evans, who’ll be interviewed by Bloomberg TV, and comments from the New York Fed’s John Williams
- Jan. 15: Minneapolis Fed’s Neel Kashkari; Kansas City Fed’s Esther George; Dallas Fed’s Robert Kaplan
- Jan. 16: Kashkari again
- Jan. 17: Fed Vice Chairman for Supervision Randal Quarles speaks; Evans on Bloomberg TV
- Jan. 18: New York Fed’s Williams on economic outlook; Philadelphia Fed’s Patrick Harker
- For economic data, some key reports could be delayed. The regular schedule includes:
- Jan. 15: Empire manufacturing; producer prices
- Jan 16: Mortgage applications; retail sales; import/export prices; business inventories; NAHB housing index, Fed beige book; Treasury International Capital flows
- Jan. 17: Housing starts/building permits; jobless claims; Philadelphia Fed business outlook; Bloomberg consumer comfort
- Jan. 18: Industrial production; University of Michigan consumer confidence
- As for Treasury’s auctions:
- Jan. 14: $39 billion of three-month bills; $36 billion of six-month bills
- Jan. 17: Four- and eight-week bills; $13 billion of 10-year inflation-linked securities
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