Treasury Prices Drift Higher as Investors Await Jackson Hole

Aug 20, 2018
Jackson Hole Wyiming Mountains

Emerging Markets Will Remain in Spotlight

The data slows to a trickle this week so that leaves the stage for emerging markets to drive the action, at least early in the week. Turkish markets will be closed for holiday observances so the emerging market direction will have  to come from other sources, but we suspect it will still be a primary focus. Wednesday brings the August 1st FOMC minutes but the real Fed attention-getter will be the opening of the annual Jackson Hole Symposium on Friday. Fed Chair Jay Powell’s Friday keynote address is “Monetary Policy in a Changing Economy.”  That address will hit at 10am EDT on Friday.  The July Existing and New Home Sales Reports (Wed. and Thur.), will be the key economic releases this week. Given the moderation in other housing-related releases of late investors will be focused on any weakness.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


Top Events of the Week Top 5 Events for the Week

AUG 20 - 24,  2018

1.  Emerging Market Developments — All Week
2.  FOMC Minutes and Jackson Hole — Wed./Fri.
3.  July Existing Home Sales — Wednesday  
4.  July New Home Sales — Thursday
5.  Weekly Mortgage Applications — Wednesday



1.  Emerging Market Developments — All Week

Emerging markets will be the key driver to trading this week but they won’t have the Turkish market to kick around. Turkey will be offline for most of the week in holiday observance so other emerging markets and China will take the lead as investors continue to watch the interplay between currency moves, commodity prices and the resultant impact of those on Treasury prices. We made the point last week that as long as the market perceives the Fed sticking to its quarterly hiking schedule, dollar strength will persist and that will work to keep pressure on other currencies. Emerging markets are also suffering through  a commodity downturn owing mostly to a China-led slowdown and that is conspiring to reduce revenue for many of these resource-selling economies at the same time that their dollar-denominated debts are getting more expensive from the currency depreciation. Continued deterioration in this cohort will contribute to additional Treasury gains while some stabilization could reverse some of the buying from last week.


2.  FOMC Minutes and Jackson Hole Symposium — Wed./Fri.

The mid-week release of the minutes from the FOMC’s latest meeting is usually a prime-time event but this week the minutes will be upstaged by the Friday kickoff of the Kansas City Fed’s annual Jackson Hole Symposium.  While the minutes will get some attention it’s nearly unanimous the Fed will hike rates at their September meeting with December still far enough away that any minute-inspired direction for that meeting will be taken with a grain of salt. Thus, most of the Fed watchers will be waiting for Fed Chair Powell’s Friday morning Jackson Hole address that is entitled “Monetary Policy in a Changing Economy.”  The Fed isn’t providing any details but we suspect he might touch on the productivity conundrum, the flattened Phillips Curve  and the lowered Neutral Rate and the impact they will have on monetary policy if their present state remains in place for the long-term.


3.  July Existing Home Sales — Wednesday

The housing market has had mixed releases lately so the pair of existing and new home sales figures will be watched closely this week. Existing home sales account for nearly 90% of the market and give us the broadest view of market health but with data based on closings it can be a bit dated versus new and pending home sales which are based on contract signings. For July, existing home sales are projected to increase 0.4% to 5.40 million annualized versus 5.38 million in June. The average over the past year has been 5.48 million annualized so a slightly below -average print with a minimal sequential increase expected.


4.  July New Home Sales — Thursday

This week also brings New Home Sales for July. Sales are expected to decrease 2.6% to 648 thousand units annualized versus 631 thousand the prior month. The average over the past year has been 635 thousand so a beat against the yearly average and a modest increase versus June results is expected.  If the forecast comes to pass it looks like sales are advancing slowly despite limited inventory and higher interest rates.


New & Existing Home Sales


5.  Weekly Mortgage Applications — Wednesday

Listing the weekly mortgage applications release should tell you two things: (1) the dearth of data that is due this week, and (2) the increasing importance of this data series in that it has experienced five straight weeks of declines in application activity. This report includes both purchase and refinance applications and while refi’s have been declining for months given higher rates, the decline in purchase applications is a newer phenomenon and is now down 19.1% on a year-over-year basis. While applications lead closings by a month or two continued weakness in purchase applications could signal slowing housing activity in the months ahead.




Technicals Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research



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