Few pieces of domestic economic data have caught the attention of bond markets recently. That’s not to say there haven’t been short term reactions to various data surprises, but the overall trend has primarily been a factor of the European ‘wet blanket’ (slumping bond yields due to economic weakness and QE expectations beginning in April 2014). The shift in Treasury trends in 2014 is obvious in retrospect. For what it’s worth, the EU-QE effect on US markets was pointed out on day 1, right here.
During that time, one piece of economic data that has motivated more than its fair share of movement is good old GDP. MBS and Treasuries had a rather negative reaction to the big swing into positive territory from Q1 to Q2, but they could take some solace in the fact the first quarter saw big downward revisions. Would Q2 be the same? We’ll see part 2 of 3 on Thursday.
All that having been said, even the last reading of GDP (the “advance” release for Q2, which came in at 4.0%) only had a short-lived effect on bond markets by the time European markets and geopolitical risk had their say. So something new and different (and frankly, unimaginable) would have to happen for US bond markets to completely come out from under the European wet blanket. Sure, there can be varying degrees of correlation, but until we see a hard bounce in the EU (where yields definitively begin to head higher), any instance of rising yields in the US should remain muted.
GDP is the most interesting report this week, but there are other market movers as well–every day but Wednesday. It’s also the last week of the month, which can draw in extra participation leading up to ‘month-end’ on Friday. Given that it’s August, it wouldn’t be a surprise to see traders get some of their month-end housekeeping trades out of the way early.