Treasury Closing Summary (December 20):
A another day of "sound and fury signifying nothing" on the Macbethian fiscal front, leaving House Republicans to press ahead with a vote on "Plan B" that will be shot down in the Senate. A couple rounds of data were mostly stock-friendly and bond-phobic, but the likelihood of these snap-backs as Sandy-related lowered the veracity of upsized GDP, home sales and Philly Fed gains, while LEI slipped and claims jumped. News that China planned to allow more movement in the yuan got the market's attention for a bit and gold was again liquidated, crashing $35 at one stage. The NY Fed continued to squeeze out a couple more Twist Ops, selling 2s and buying bonds into the steepener.
Equities initially lost some traction on the frosty fiscal headlines ahead of the world's demise on Friday. Q3 GDP was revised up to 3.1% from 2.7%, while initial jobless claims climbed 17k for the Dec-15 week - somewhat offsetting. Jitters following the hardening of sides over a House vote on the Republican plan sent global stocks lower. Philly Fed index surged to 8.1 in Dec, well over median -4.0 vs -10.7 in Nov and looked a tad Sandy. Existing home sales surged 5.9% to 5.04 mln in Nov, above the median of 4.86 mln. Leading econ indicators sank 0.2% in Nov, in line with the median vs 0.3% in Oct. In M&A, ICE confirmed a purchase of the NYSE Euronext for roughly $8.2 bln, creating a global stock exchange. Google spun off Motorola Home (TV set-top boxes) to Arris Group for $2.35 bln.
The fiscal cliffhanger continued, with the vote on "Plan B" in the House is scheduled between 19:30-21:30 ET this evening. After that, the Democratic-held Senate will vote it down and government should essentially shut down on this negative note for the Xmas break. What mood lawmakers will be in when they return next week is anyone's guess, but the cliff deadline could prompt some compromise ahead of the 11th hour.
Yields pulled back from highs with opening declines on stocks, though big gains in the Dec Philly Fed index and Nov existing home sales didn't prompt much backlash. No doubt the volatility from Hurricane Sandy continues to be registered. The 2-year yield eased from the 0.28% area back down to 0.27%. The T-note yield topped out near 1.80% after climbing from 1.77% as stocks made a slight rebound later on Boehner comments that he was still open to negotiations. The 2s-10s spread settled near +152 bp.
Treasury's 4-year 4 month TIPs Auction saw a sale of $14 bln of the reopened 0-1/8% April 15, 2017 TIPS at a high yield of -1.496% versus -1.485% at the bid deadline. The median yield was -1.550% and the low yield was -1.590%. The bid-cover dipped to 2.70 from the very strong 3.11 seen in August, but above the 2.58 April cover. And the indirect bid was high at 49.0%, versus 34.4% in August and 36.0% in April.
NY Fed Double-Twist:purchased $1.73 bln bonds; sold $7.421 bln short notes. China is aiming to keep the yuan stable, but to allow an appropriate increase in movement. USD pulled back from Asia-session highs as risk sentiment steadied in Europe. NYMEX crude consolidated gains close to $90, gold slumped $20 to $1650.
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