Economic data will be relatively quiet this week, but there are still a couple of events that bond investors will want to watch.
Last week’s key data point was a stronger-than-expected reading on inflation in April. And while that boosted bond yields, they fell over the following two days and still remain below the peak reached after the report, in a departure from the trend in the first quarter of this year. That is likely because inflation got the biggest boost from sectors tied to the reopening, and because other sectors of the economy saw slower consumer-price increases.
The benchmark 10-year yield was trading around 1.64% on Monday morning. And the events that will determine the direction of yields this week are probably going to lead to fewer headlines than the inflation print—the strongest month-over-month reading since 1982—but should still matter for bond investors.
For example, data on housing starts and existing home sales for April, due out on Tuesday and Friday, will matter because it will provide a window into how high commodity prices and supply shortages are affecting housing. Economists expect a deceleration in the number of new home starts from March, but that doesn’t necessarily mean trouble for the housing market: that month reflected a rebound from the freezing temperatures that slowed construction across much of the U.S. in February. Existing home sales, on the other hand, are expected to pick up slightly.
Another event that investors may want to watch is Wednesday’s 20-year bond sale. Demand for longer maturities of Treasuries has held up relatively well, which backs up the idea that investors think strong inflation won’t last longer than a few years, but if that view changes it may affect demand. For a more direct gauge of demand for inflation protection, investors may want to look at the response to the U.S.’s $13 billion sale of 10-year Treasury Inflation-Protected Securities on Thursday.
Find more detail on those auctions, economists’ estimates for this week’s economic data points, and other events below:
Treasury International Capital flows data: The Treasury will publish its monthly report on demand for U.S. securities from global investors, and U.S. investors’ demand for global securities, at 4 p.m. Monday. The report will be for March.
Housing starts: The U.S. Census Bureau and Department of Housing and Urban Development are expected to report that there was a seasonally adjusted annual pace of 1.71 million housing starts for April, down from 1.74 million the month before. They are expected to report a slight uptick in the number of building permits, however. The data is due out at 8:30 a.m.
Mortgage applications: Economists don’t provide estimates for the weekly mortgage application data, but the weekly data from the Mortgage Bankers’ Association provides a real-time view into housing demand. For the week ended May 7, applications rose 2.1%. Data for the week ended May 14 is due out at 7 a.m.
20-year Treasury auction: See above. The U.S. will sell $27 billion in 20-year bonds at 1 p.m.
Fed meeting minutes: The Federal Reserve will publish the minutes from its latest meeting at 2 p.m. Fed officials have been discussing policy choices in media appearances since their April meeting, so the release may not carry much in the way of surprises, but still could be worth a look in case there are hints that the central bank may be less dovish than expected.
Jobless claims: Economists expect initial jobless claims to decline to 450,000 for the week ended May 15. A lower-than-expected figure could imply more economic strength, while a higher number could raise further questions about the labor market’s recovery after April’s disappointing jobs figure.
Leading indicators: The Conference Board’s index of leading indicators is expected to climb 1.3% in April, in line with the month before. The index tracks a series of data points including manufacturer orders, weekly hours, stock prices and consumer expectations for business conditions. The data is slated to be released at 10 a.m.
Purchasing managers’ surveys: Markit’s preliminary surveys of economic activity in the manufacturing and service sectors for May is due out at 9:45 a.m. Economists expect the manufacturing PMI to come in at 61.3, up from 60.5 the month before, while estimates for the service-sector gauge for an increase to 64.9, up slightly from 64.7 the prior month. Readings above 50 indicate expansion.
Existing home sales: Economists expect a small acceleration in existing home sales in April, to a seasonally adjusted annual pace of 6.05 million, up from 6.01 million the month before. The data is slated to be released at 10 a.m.
Write to Alexandra Scaggs at [email protected]