Stimulus 3.0 Gets Closer & Treasury Auctions

Just like when Navin R. Johnson got his name in the phone book in the movie The Jerk, things should start happening now with regards to the Biden Administration’s proposed $1.9 trillion Stimulus 3.0 package. After some attempts at bipartisanship, the administration seems prepared to go it alone and not cut the size of the package in hopes of garnering some Republican votes. While some tweaking may be necessary to keep all 50 Democratic senators on board, it appears they will be able to do that and pass the measure via the reconciliation route. The most contentious piece seems to be the stimulus checks and targeting those with lower levels of income. The problem is if you go by 2019 tax returns that may not show a complete picture for a family that lost income or jobs in 2020 during the pandemic. In any event, we should see the Senate take it up in earnest this week. Also this week, the Treasury will hold three auctions with $58 billion in 3-year notes to be sold tomorrow, $ 41 billion in 10-year notes on Wednesday, and $27 billion in 30-year bonds on Thursday. While yields have backed up coming into the auction it will be informative to see how the auctions proceed.  Expect the market to trade heavy this week until we get the past the auctions and the new supply is put away.

Treasuries
Treasury Curve Today Week Change
3 Month 0.02% -0.03%
6 Month 0.04% -0.03%
1 Year 0.06% -0.02%
2 Year 0.10% -0.01%
3 Year 0.18% +0.01%
5 Year 0.48% +0.05%
10 Year 1.18% +0.10%
30 Year 1.99% +0.15%

 

Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.19%
6 Mo LIBOR 0.21%
12 Mo LIBOR 0.30%
Swap Rates
3 Year 0.293%
5 Year 0.604%
10 Year 1.262%

 

Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Feb 9 NFIB Small Business Optimism Jan 97.0 97.5 95.9
Feb 9 JOLTS Job Openings Dec 6.450mm 6.400mm 6.527mm
Feb 10 CPI MoM Jan 0.4% 0.3% 0.4%
Feb 10 Core CPI MoM Jan 0.2% 0.2% 0.1%
Feb 10 Core CPI YoY Jan 1.5% 1.5% 1.6%
Feb 10 Wholesale Inventories MoM Dec 0.1% 0.1% 0.1%
Feb 11 Initial Jobless Claims Feb 6 775k 760k 779k
Feb 12 U. of Michigan Sentiment Feb P 80.8 80.9 79.0
Feb 12 U. of Michigan 1-Yr Inflation Feb P 3.0% 3.0% 3.0%

 Top 5 Events for the Week

Feb. 8 — 12, 2021

1. Biden Stimulus 3.0 Outlook — All Week
2. January CPI — Wednesday
3. Treasury Refunding Auctions — Tues./Wed./Thurs.
4. February U. of Michigan Sentiment — Friday
5. December JOLTS Job Openings — Tuesday

 

1.  Biden Stimulus 3.0 Outlook — All Week

Just like when Navin R. Johnson got his name in the phone book in the movie The Jerk, things should really start happening now with regards to the Biden Administration’s proposed $1.9 trillion Stimulus 3.0 package. After some attempts at bipartisanship, the administration seems prepared to go it alone and not cut the size of the package in hopes of garnering some Republican votes. While some tweaking may be necessary to keep all 50 Democratic senators on board, it appears they will be able to do that and pass the measure via the reconciliation route. The most contentious piece seems to be the stimulus checks and targeting those with lower levels of income. The problem is if you go by 2019 tax returns that may not show a complete picture for a family that lost income or jobs in 2020 during the pandemic. In any event, we should see the Senate take it up in earnest this week.

 

2.  January CPI Report — Wednesday

If you look at rising TIPs inflation breakeven rates there’s little doubt investors believe the new stimulus, and spreading vaccinations, will boost inflation in short order and longer-end Treasury yields have been moving higher in anticipation. We continue to be a little more skeptical that inflation gains any real foothold in 2021 other than the March and April comparisons when much of the nation was in lockdown.  For January, overall CPI is expected to increase  0.3% matching the prior month increase. The core rate (ex-food and energy) is expected to increase 0.1% versus a 0.2% increase in December.  YoY CPI is expected to be 1.5% after last month’s 1.4% result. Core CPI YoY is expected to tick down to 1.5% after December was 1.6%. Thus, with fairly docile YoY numbers, gathering inflation may be something to expect at some point but it’s probably a late 2021 story.

 

 

3.  Treasury Refunding Auctions — Tuesday/Wednesday/Thursday

This week includes three Treasury refunding auctions with $58 billion in 3-year notes auctioned tomorrow, $41 billion in 10-year notes on Wednesday, and $27 billion of 30-year bonds on Thursday. While yields have backed up coming into the auction it will be informative to see how the auctions proceed. While the Treasury didn’t upsize these auction amounts the size already includes plenty of upsizing from the levels auctioned say a year ago. Expect the market to trade heavy this week until we get the auctions past us and the new supply is put away.

 

4.  February University of Michigan Consumer Sentiment — Friday

With the consumer playing such a pivotal part in the economy, gauging their sentiment is crucial to determining how likely they are to continue shopping as virus cases continue to spike. For February, the Bloomberg consensus is for sentiment to be 80.9 up slightly from January’s  79.0 reading while consumer expectations edge lower to 89.0 versus 90.0 in January. The sentiment index peaked at 101 a year ago this month and bottomed at 68.0 in April. So while there has been some improvement off the lows, sentiment appears to be settling in the 80 range and given the battle with the pandemic that is a fairly logical read on the situation.

 

5.  December Job Opening and Labor Turnover Survey — Tuesday

The slide in monthly job gains will get Fed officials concerned so the Job Openings and Labor Turnover Survey for December will get additional attention for that reason. While the report is a month behind the jobs report it does provide some additional labor market information that will be of interest to policy makers and investors. Expectations are for 6.400 million openings versus 6.527 million in the prior month. Much like the monthly BLS report, the JOLTS report is slipping a bit and that will concern policymakers as still more that 10 million people remain unemployed from the pandemic.

 

 


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Published: 02/08/21 Author: Thomas R. Fitzgerald