What’s on the Agenda for this Week?
This is a holiday shortened week (Merry Christmas!) with really only 2.5 days of trading. Wednesday will have a barrage of big economic releases but thing 1 and thing 2 (read below) will still carry the most weight.
The three areas that have the greatest ability to impact backend pricing this week are: (1) Coronavirus, (2) Geopolitical and (3) Domestic Flavor.
(1) Coronavirus: This continues to fuel the flight to quality and will continue to drive cash into bonds as the news and data continue to get worse at an exponential pace which spells heady economic winds.
(2) Geopolitical: The Covid Stimulus Bill is going to be voted on later this afternoon. All parties have publicly agreed but the markets are waiting to see if it actually passes. The devil is in the details as the final language is being drafted and a final version will only have a very short time to be read prior to the vote. According to reports, here are some key parts of the $900 billion agreement:
• Direct payments of $600 to most Americans ($600 per adult and $600 per child); the amounts decrease for individuals with more than $75,000 in income and $150,000 for couples.
• $300-per-week in enhanced unemployment benefits through March. Expiring programs for gig workers and the long-term unemployed also would continue.
• $284 billion for the Paycheck Protection Program that provides grants of forgivable loans to small businesses, arguably the most successful and also most abused program of the CARES act. This represents the bulk of the $325 billion the bill puts toward small businesses
• $82 billion for education: includes $54.3 billion for K-12 schools and $22.7 billion for colleges; governors would get $4.05 billion to spend on education aid at their discretion. For-profit colleges would get $908 million for grants to students, and another $1.7 billion would be set aside for historically black colleges, tribal colleges, minority-serving institutions
• $10 billion for child care.
• $15 billion in grants for theater operators and owners of small performance venues.
• $25 billion in rental assistance and an extension of the moratorium on evictions.
• $13 billion in funds for food-stamp and child-nutrition benefits.
• $30 billion for the procurement and distribution of a Covid vaccine, as well as testing and tracing.
• $1.8 billion in tax credits for businesses to provide paid leave.
• $15 billion in payroll assistance for airlines designed to ensure that 32K furloughed workers return to work until at least March. However, there is NO enforcement provision in this round of aid.
In addition to the stimulus bill, there is a nice $1.4 trillion spending bill that will also be voted on to keep the government open. President Trump signed a one-day extension last night to keep the government open today to enable the two bills to be voted on today.
(3) Domestic Flavor: This is a big week for economic data; in order of importance, here are a few of the biggies: PCE (the Fed’s key measure of inflation), Weekly Jobless Claims, Personal Income and Spending, Consumer Confidence, Durable Goods Orders and revised GDP.
This week’s auction on 12/21: 20 year Treasury Bond.
Central Bank Palooza: The Peoples Bank of China kept their key interest rate at 3.85%.
Treasury Dump: The 20 year Treasury Bond auction was today. $24B went off at a high yield of 1.470% with a bid to cover ratio of 2.39 which is solid demand.
On Deck for Tomorrow: 3rd quarter GDP Revised, Existing Home Sales, Richmond Fed Manufacturing Index and Consumer Confidence.
While all parties are said to be on board with a new $900 billion stimulus bill, it has yet to be voted on today as the final language is being completed. The bond market so far is having a “wait and see” approach to see if a vote happens tonight.