MBS Day Ahead: One of the Biggest Potential Durable Goods Reports Ever (And it Won’t Matter)


A cute little phenomenon got a fair amount of buzz on an otherwise slow news day yesterday.  It has to do with today’s Durable Goods data and the fact that it could be insanely strong.  In fact, some economists are calling for a month-over-month improvement of over 30%, which would easily be an all-time record.  Even the median forecast would be the highest in over 2 years.

2014-8-25 dg

But even if we see the 30% gain, it’s still not likely to matter to markets beyond the first few minutes following the report.  Reason being: the big gains would be exclusively due to Boeing’s 777 orders, which are already a known quantity. 

Also, there are sub-components of the report that factor out aircraft and they’re already more widely followed than the ‘headline’ in which the Boeing effect might be felt.  Finally, this report, like others, is based on the change from the previous instance, so excessive strength this month would result in a roughly equal amount of weakness in the following month, all other things being equal. 

Bottom line: it might be a fun conversation piece, but we won’t see any lasting change in bond market trading levels as a result.

The day’s other data isn’t quite as significant as Durable Goods, but 10am Consumer Confidence can move markets on occasion.  The week’s auction cycle begins at 1pm with 2yr Notes.  These are generally of no consequence to MBS, but it’s not impossible for us to see a token movement given the current volatility in the yield curve and ongoing dialogue on Fed rate hike timing (Fed Funds Rate policy has a more direct effect on shorter-dated Treasuries like 2yr Notes).

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