Economist's Insights

Today’s Trading Activity – Curve Flattened as Strong Retail Sales Anchored Short Yields, Stocks’ Slide Pushed Longer Yields Lower

Dec 14, 2017

An opening jump for U.S. equities and longer Treasury yields quickly succumbed to a slow and steady drift lower during Thursday’s session. The stronger-than-expected retail sales data for November showed the consumer and broader U.S. economy on a better-than-expected path and gave an initial boost to investors’ risk appetite. However, the momentum quickly faded and both stocks and longer Treasury yields turned back. Stocks’ slide was steady and rather strong with two noticeable intraday drops. The first occurred around 10 a.m. CT and coincided with a similar shift in the S&P’s financials sector. The second occurred just after 1 p.m. CT following a breaking news alert indicating Senator Marco Rubio would vote no on the tax bill if the Child Tax Credit wasn’t enhanced. After rising as much as 0.2% in the morning, the S&P ended 0.4% lower. The Dow and Nasdaq experience similar swings with both closing 0.3% lower. As stocks weakened, a bid for longer Treasurys reemerged and pushed the 10-year Treasury yield from a high of 2.39% to as low as 2.34% (closed at 2.35%). The Long Bond fell 2.1 bps to 2.71%.  But with yesterday’s Fed decision including a continued expectation for more gradual rate increases to come, and this morning’s solid economic data boosting the market’s buy-in a bit (fed funds futures closed a touch steeper), shorter yields were more anchored. The 2-year yield was less affected by stocks’ deterioration, rising 3.7 bps to 1.81% and finishing near its daily high. The Dollar finished stronger on a mix of notable swings against the Euro, Yen, and Canadian Dollar.