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30-Year Treasury Auction Met With “Strong Demand”

Treasury markets breathed a collective sigh of relief that all three Treasury auctions held during the week were met with “strong demand.” Yesterday the government sold $25 billion of the 30-year at a lower than anticipated yield.  However, this is all relative given that yields had increased prior to the auction thus many believed the debt was “cheapened” to get the deals done.

The gains, however, may have been short lived with yields approaching pre-auction highs at days end fearing potential revisions in today’s CPI data and the weekly jobless claims that fell to a three-week low.

A major concern that may unfold is rising inflationary pressures from the issues in the Red Sea.  Tensions are increasing and are now at levels perhaps last experienced during early 1945. 

Earlier in the week, the ISM remarked that increased transit times and bottlenecks are beginning to impact prices.  There have been some comments about food spoilage and livestock deaths given the increased transit times.

Some are suggesting an increased probability of food shortages given this spoilage, a shortage that may cause higher prices and if severe enough potential social unrest.

Oil rose about 3.5% yesterday on transport concerns.  Some had pointed to Israel’s denial of a potential hostage swap, the result of a cease fire.  It was reported however Hamas reneged on agreed upon terms for such a swap to occur.

Equites were relatively quiet even as the bond market closed lower in price.

As noted above, today CPI revisions are released.  Many are now openly questioning the veracity of the data given last week’s acknowledgement by FRB Chair Powell that the CPI understates inflation.  Many believed as such but were fearful to makes such beliefs public for a myriad of reasons.

Will the revisions be of significance?

And then there is evolving political scene.  How will the latest Justice Department report influence the already raucous political environment?  Will it become part of the market narrative or remain as noise?

Last night the foreign markets were mixed.  London was up 0.02%, Paris down 0.15% and Frankfurt up 0.06%.  China was up 1.28%, Japan up 0.09% and Hang Seng down 0.83%.

Futures are flat ahead of the revised CPI data that could potentially shift the inflationary narrative.  Last week did FRB Chair Powell forewarn the markets that such was going to occur when he stated the CPI understates inflation?  The 10-year is off 3/32 to yield 4.17%.

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Kent Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.