Doug Kass fills his blog on RealMoney every day with his up-to-the-minute reactions to what’s happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
How Macy’s explains itself. How the 10-year note auction went.
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Now You Know the Rest of the Story Originally published May 11 at 11:03 a.m. EST Here is a summary of the Macy’s ( M) conference call: Says it expected Q1 to be its weakest quarter of the year due to the initiation of its strategic initiatives Notes the back half of the quarter performed better than the first Says trend improved and expects the ‘trend and improvement’ to continue in Q2 and build in Q3 Cites 4 reasons for the trend improvement: Benefit from the retained sales from closed stores just started to be experienced Rollout of its pilots New marketing strategy Improvement on the digital front Sales continued to grow double digits in the digital channel Saw slowdown in traffic at mall-based stores Notes southwest region based out of LA was strongest and the Northeast region was weakest Weaker biz in the quarter included handbags, fashion jewelry, and watches, housewares and top of table Trends at Bloomingdales were similar Still expects capex of about $900 million for the year Position: None. Auction Action Originally published May 10 at 2:29 p.m. EST
After a weak 3-year note auction, the 10-year note auction was worse. The yield of 2.40% was almost 2 bps above the wh en issued. The bid to cover of 2.33 was below the twelve month average of 2.47 and dealers got stuck with 34% of the auction, above the one year average of 28%. Treasuries immediately sold off in response and now the off the run is yielding 2.41% vs 2.37% earlier today and up 1 bp vs. yesterday’s close. As the 2-year yield is up 1 bp too, the spread between the two is unchanged.
Bottom line, until proven otherwise, the 2.30-2.60% range remains the predominant trend in the 10-year U.S. note yield. The trade below lasted about two weeks and was quickly reversed when French politics resolved itself. It certainly wasn’t because there was much of a change in the U.S. economic data but there was improvement in Europe. European bonds and the influence of the ECB may very well ultimately determine the direction of U.S. yields this year because of the high correlation as the ECB most likely continues its tapering.
Right now the spread between the U .S. 10-year yield and German bund 10-year yield is at 198 bps. As for the U.S. economic influence on Treasuries, the growth is good enough for the Fed to continue hiking but the flattening of the curve is a response that participants are a bit worried about the impact coming off a punk 1Q2017. The 2s/10s spread stands just 5 bps from where it stood on election day.