This week’s key releases
One of the most important highlights this week, February 17–21, for bond markets will be the Treasury International Capital data release that tracks the inflow and outflow of funds from the United States. This is relevant because the onset of the Fed’s tapering program, combined with weakness in domestic economies, has precipitated flight-to-safety flows to U.S. debt markets—particularly Treasuries.
There has been almost $30 billion in outflows from emerging markets year-to-date, which is almost equal to the entire outflow in 2013. A lot of this has been channeled into the U.S. debt market, buoying up the prices of U.S. debt securities. This has caused the debt markets to rally despite the Fed curtailing its open market purchases of Treasuries and agency-backed securities, which was actually expected to reduce bond prices. Instead, bond prices have rallied.
The Vanguard Total Bond Market ETF (BND) has rallied almost 1.5% since the start of the year (to February 14). Of the ETF’s assets, 86.81% are allocated to U.S. bonds—both Treasuries and corporate bonds, including AT&T (T), Verizon (VZ), and Bank of America (BAC).
Other important releases this week include the following.
- The Business Outlook Survey for January will be issued by the Philadelphia Fed on Thursday, February 20.
- We’ll see four key housing market indicators:
- The Housing Market Index (HMI), issued by the National Association of Home Builders and Wells Fargo (WFC), will come out on on Tuesday, February 18, for February.
- Housing starts for January, issued by the U.S. Department of Commerce, will come out on Wednesday, February 19.
- The weekly change in the Mortgage Bankers’ Association Purchase Applications Index will also be released on Wednesday.
- Existing home sales for January will be issued by the National Association of Realtors on Friday, February 21.
- Inflation estimates, represented by the producer price index and the consumer price index, for January will be released on Wednesday, February 19, and Thursday, February 20, respectively, by the Bureau of Labor Statistics.
- Weekly Initial Jobless Claims for the week ended February 15 will be issued by the Bureau of Labor Statistics on Thursday, February 20.
These releases are expected to provide guidance on economic headwinds.
Severely cold weather has impacted almost all industry segments, and this trend may continue this week—particularly in relation to January’s readings.
To find out if the safe-haven flows to the U.S. debt market are expected to continue, move on to Part 2 of this series.