Treasury Rates Commentary

• Needless to say today was quite the reversal from the recent trend in Treasuries: a powerful and vicious  move to higher rates.  

• Treasury market opened up in New York mixed with much of the curve slightly lower with the exception of the long end. Treasuries staged a small selloff after the better than expected GDP at 1.6% versus an expected 1.4% but this selloff quickly dissipated with many awaiting Chairman Bernanke's speech at 10AM. Chairman Bernanke’s speech in Jackson Hole did not contain much information that wasn't anticipated, headlines included : FOMC prepared to provide more accommodation if needed, preconditions for growth pickup in 2011 are in place, painfully slow recovering in the labor  market and growth has been too slow, unemployment too high. Much of the speech was centered around any signs of a larger quantitative easing program with the Fed expanding its balance sheet, however all that Bernanke said was long term buying would be effective.The initial reaction was equities selling off and Treasuries firmly bid. However within minutes this quickly reversed with Treasuries tumbling, a trend that continued throughout the session. Today's selloff was one of the largest of 2010. As expected given the current structure of the curve the long end led the selloff by a significant amount. At 3PM Treasuries were lower across the curve with yields ~4-17bps higher in yield.  2/10s steeper by 11.1bps 2/30s by 12.1bps. 

• We view today's selloff as a much needed correction, but overall look for the Treasury market to recover and hold/ trade to lower rates. Eyes next week will be on consumer confidence, minutes of the FOMC meeting and employment reports Wednesday and Friday. Next week is also the week before labor day so moves can be exasperated given the expectations many desks will be lightly staffed. 

• On the calendar next week is 10 year TIPS, the Treasury announcement for the follow weeks including 3s, 10s and 30s and two purchases: Tuesday across the TIPS curve and Thursday 2012-2013