World’s biggest bond market braces for the week that could change everything

This week is fraught with peril for Treasuries traders, no matter if they’re bulls or bears.

Source: Financial Times

The next five trading days will bring a torrent of market-moving information: President Donald Trump is poised to finally announce his nominee to lead the Federal Reserve; U.S. central bankers have an interest-rate decision to make; the first charges from special counsel Robert Mueller’s probe into Russian meddling in the 2016 presidential election; a House committee is set to release a tax bill; and the Treasury will unveil plans to issue more debt to make up for lost funding from the Fed. Oh, and investors will also get the latest reading on the nation’s job market and the central bank’s preferred inflation gauge.

It’s a lot to digest. What’s more, it all comes at a pivotal time, with 10-year yields breaking above the crucial 2.4 per cent level and touching a seven-month high of 2.48 per cent. With yields entering a new, elevated range, traders are bracing for turbulence as they ponder the direction of the world’s biggest bond market for the remainder of 2017.

“I would definitely expect those ranges to be tested in a big way,” said Michael Lorizio, a senior trader at Manulife Asset Management, which oversees $370 billion. “The information we get in the next week should allow people to feel more confident in their longer-term views, and more aggressively position for those views going into the end of the year.”

Signs are emerging that volatility is returning to fixed income, after it fell to a record low in August. Bank of America Corp.’s MOVE Index, which tracks swings in Treasury options, jumped last week to the highest in five months.

Commentary around higher yields may have added to the volatility.

DoubleLine Capital LP’s Jeffrey Gundlach called it “the moment of truth” for the bond market’s three-decade bull run after yields broke through 2.4 per cent. Bill Gross at Janus Henderson Group said this month that a sustained move through that level would signal the end of the 30-year rally.


The full slate of events ahead and the prospect of market turmoil could scare away buyers until the dust settles, Lorizio said. Even investors who consider Treasuries oversold might prefer to wait, either for confirmation that yields will drop or for an even more attractive entry point.

“Given the big move in Treasuries, it would warrant some caution coming into the week,” said Alex Li, head of U.S. rates strategy at Credit Agricole SA.

The latest read on positioning in futures markets indicates that restraint.

Hedge funds and other large speculators cut back on bets against two- and five-year Treasury maturities in the week through Oct. 24, after their net shorts reached record highs, Commodity Futures Trading Commission data show. On the flip side, asset managers’ net duration across the Treasury curve dropped.

It’s a frightening week to take a big bet one way or the other.


  • Trump is poised to announce his nominee for Fed chair by Nov. 3, before he departs for Asia
    • NOTE: Treasuries rallied as betting website PredictIt showed traders jumping on bets in favor of Fed Governor Jerome Powell
  • In Congress, the House Ways and Means Committee is expected to release on Nov. 1 legislation for tax cuts
  • The federal investigation into whether President Donald Trump’s campaign colluded with Russia took a major turn Monday when authorities revealed that three people — a former campaign chief, his business associate and an ex-policy adviser — were charged with crimes ranging from money laundering and tax evasion to lying to the FBI.
    Paul Manafort, the campaign manager, and onetime business partner Rick Gates were charged with money laundering and tax evasion. Separately, George Papadopoulos, the foreign policy adviser, secretly pleaded guilty weeks ago and has been cooperating with Special Prosecutor Robert Mueller’s probe into Russia’s interference in the 2016 election.
  • It’s a critical week of economic data, with releases on inflation and the labor market
    • Oct. 30: Personal income and spending, PCE data, Dallas Fed manufacturing activity
    • Oct. 31: Employment cost index, S&P CoreLogic Case-Shiller indexes, MNI Chicago Business Barometer, consumer confidence
    • Nov. 1: ADP employment change, construction spending, Markit U.S. manufacturing PMI, ISM manufacturing, prices paid, new orders and employment
    • Nov. 2: Challenger job cuts, initial jobless claims, continuing claims, nonfarm productivity, unit labor costs, Bloomberg consumer confidence
    • Nov. 3: Change in nonfarm payrolls, unemployment rate, average hourly earnings, labor-force participation rate, trade balance, factory orders, durable goods orders, Markit U.S. services and composite PMIs
  • The FOMC is expected to leave rates unchanged Nov. 1 and set up a hike in December
    • On Nov. 2, Powell and N.Y. Fed’s Dudley speak at alternative reference rates event, while Atlanta Fed’s Bostic speaks in Chicago about government statistics
    • On Nov. 3, Minneapolis Fed’s Kashkari speaks on housing and finance
  • The Treasury has bill auctions scheduled; traders will focus on the department’s refunding announcement Nov. 1
    • Most firms say Treasury will only lift bill auction sizes, while a few predict they will also increase note issuance amounts