The Sell Off Continues

By Joseph Burke | Interactive Brokers Dec 2, 2013, 3:03 PM 

Stronger than expected manufacturing reports out of the EU and China set the tone for softer bond prices and higher rates globally. The US joined suit when ISM Manufacturing increased more than forecast and pushed Treasury yields higher. It was actually the strongest US reading since April 2011. The manufacturing sector is benefitting from a slightly stronger housing market. However, higher rates will likely mitigate growth in housing going forward.

The yield curve continues to steepen as the spread between 2yrs and 10yrs has widened to 251 basis points. There is a great deal of data this week including the release of the Fed’s Beige Book and the Non-Farm Payroll Report due out on Friday. I think that positive economic news will continue the curve steepening that we have seen. There was an article in the WSJ this morning suggesting that large banks are steering clear of Treasuries in favor of cash over fears of the Fed tapering. If true, this will weigh heavily on bond prices.

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