The Treasury market is trading lower this morning even though the housing data would have made you think otherwise. Housing Starts in the month of September fell 4.7% and Building Permits for the same period dropped 4.5%. The takeaway from this data is that these numbers move up and down at a pace that may or may not be parallel to the U.S. economy, plus the hurricanes could have something to do with the drops as well. In essence, the bond market simply shrugged this data off and kept selling into it. Later today we will get the Beige Book and we are looking for consistent “beige” data roughly suggesting that most are reporting moderate activity with limited inflation. As I have reported in the recent past, the bias for Treasuries is still towards higher rates and the Fed, especially the Fed Chair, is “selling” it hard to the market with every speech. They are particularly stating that inflation is coming and the bond market is beginning to think that, over time, they may be right. As I have often said, even a cow patty will bounce if you throw it down hard enough. Look for that push to continue when New York Fed President Bill Dudley speaks today. Kansas City Fed President Esther George speaks tomorrow and Chair Yellen will address the National Economists Club on Friday, and I believe she will try to get her inflation outlook into that speech as well. Speaking of the FOMC, the president says he will make his pick on the next Fed chair by November 3rd. The odds are that it is a two person race between John Taylor (hawk) and Janet Yellen (dove). This should make for an interesting lead up, because it is very hard to handicap this president. The remaining market issues, tax reform and deregulation are slowly making their way towards Congress, but it is anyone’s guess as to whether we will see significant progress before the year ends. In other words, in absence of any big surprises, embrace the range trade with all of your might!
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