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--Traders Eyed Busy High-Grade U.S. Corporate Debt Issuance
By Sheila Mullan
     NEW YORK (MNI) - When traders in the U.S. Treasuries market return to work
Tuesday after the long U.S. Labor Day weekend holiday, they will face such
issues as congressional progress on solving the debt limit situation, the budget
deficit and North Korea worries.
     Meanwhile the U.S. high-grade corporate bond issuance pipeline should be
very busy as summer ends, said syndicate officials.
     Jefferies economists Ward McCarthy and Tom Simons said next week's calendar
"will be backloaded and busy, as we say goodbye to Summer 2017. The economic
data calendar will feature factory orders, the trade balance, and the ISM
Non-Manufacturing Index, in addition to jobless claims, which could be the first
economic data release that shows an impact from Hurricane Harvey and the
resultant flooding."
     They add the "Fed speaking calendar will pick up the pace as policymakers
take an opportunity to get their messages out following their meeting at Jackson
     They said the Treasury's auction activity "will be limited to bills, but we
should keep an eye out for Cash Management Bill announcements due to the debt
ceiling. Treasury will also announce 3-years, 10-years, and bonds on Thursday
for auction the following week." (Treasury will sell a $33 billion 26-week bill
auction Sept. 5th, a $39 billion 3-week bill that same day, and a $25 billion
eight-day Cash Management Bill and a $20 billion 4-week bill auction; see
details in below calendar).
     Jefferies economists pointed out next week, "for the first time in a long
time, jobless claims could be the highlight. We expect a roughly 30,000 increase
vs. last week resulting from the devastation resulting from Hurricane Harvey and
the continued flooding in the Greater Houston metropolitan area. It is possible
that the spike could be even larger."
     They used the jobless claims data "following Hurricane Katrina in August
2005 as a template" and found that the "claims print for the week following
Katrina's landfall was up about 10,000 from the prior week. The claims print two
weeks following was up about 100,000 from the average heading into the storm. It
is possible that technological changes over the past 12 years will result in
more efficient claims processing and a bigger, faster jump, but we do not know
for sure" so it "bears watching, with upside risks."
     Other data include Tuesday's factory orders, which "will be dragged down by
aircraft weakness;" Wednesday's "July trade balance that is due to widen if the
advanced release is any indication, the August ISM services index," Thursday
revised Q2 productivity and unit labor costs, they said.
     BMO analysts Ian Lyngen and Aaron Kohli said next week, "the market will
surely be faced with a litany of headlines from Washington, as Congress returns
from the August recess to find a looming debt-ceiling, budget deadline, and the
challenges of funding Hurricane Harvey relief aid."
     "With the backdrop of North Korean geopolitical tensions and the dearth of
economic data, the fundamental inputs will be limited to a few second tier
releases and the Fed's Beige Book," they quipped. "We find ourselves more than
just a little perplexed by the lack of material follow-through" in Treasuries
prices Friday after "the softer employment report, and are nonetheless biased
toward lower yields in the medium-term, with the caveat that as vacations wind
down and the market returns in full force the prevailing range may be tested.
Watch for further consolidation over decisive action."
     The BMO analysts said the August employment report had disappointing
156,000 "headline payroll growth" and "downward revisions totaling -41,000. The
unemployment rate unexpectedly ticked higher, while the participation rate was
unchanged and wages were softer than anticipated, but not as troubling as the
phantom revisions initially implied. The yearly change in total average hourly
earnings was unchanged at 2.5% and for non-supervisory workers, the pace was
2.3% -- both low and holding the broader trend, but not pressing the lower
     They said "the absence of realized inflation, despite the moderate wage
growth, has been a topic of much debate and the perception that the Fed has
'moved-on' from the divergence arguably leaves the market less sensitive to the
slower pace."
     The BMO analysts pointed out "this leaves it to the Fed to further refine
its messaging regarding the potential for a December hike. And while a tapering
of SOMA reinvestments later this month is a given, our attention will be on the
Fed's economic projections and the perceived path of Fed funds," the BMO
analysts said.
     "There currently exists a gap between OIS and the dot plot that we
anticipate will narrow at the September meeting, as the realities of the data
and absence of inflation prompts the Committee to offer a less ambitious
outlook," they said. "The next round of SEP updates are still a couple of weeks
away and more immediately on the horizon we'll have an array of Fed speakers to
offer any skew the Committee might want in the market as the event nears.
     Traders also eyed the Fed's expected potential guidance at its September
19th-20th FOMC meeting on its balance sheet rundown, which could start to be
implemented in October. The Fed could unveil its balance sheet reduction
strategy -- letting Treasuries and/or MBS run off its portfolio -- at the
September FOMC meeting for an October start date, said traders.
     Once tapering begins, the U.S. Treasury would have to figure out how to
slice its debt issuance to cope with such a runoff of Treasuries. Traders also
eyed a potential December 2017 rate hike but that is way off, with months of
inflation data ahead.
     Meanwhile traders eyed the Sept. 7th European Central Bank policy meeting.
But German Bunds weakened Friday on talk that the ECB may not offer any insight
into what will happen to the current bond buying program when it expires in
December. Analysts had expected that guidance either this month or in October.
     Currently, the ECB is buying E60 billion per month. Analysts have varied
views about what the central bank will do in terms of extending the bond buying
program and or reducing the amount of bonds purchased.
     BMO's Lyngen and Kohli said their "more bullish aspirations" on the
Treasuries market "certainly saw limited satisfaction on Friday and this leaves
us cautious. While we continue to expect that 10-year yields will trade with a
1-handle by the time the debt ceiling and budget debate are resolved, the
consolidation that is currently underway appears poised to continue for at least
a while longer. The Treasury market tone early next week will be key. And
without any clear dip-buying interest from overseas accounts, it will be
difficult to envision a sustainable range break in favor of lower yields."
     -- story also reflects contributions from Giovanny Guerrero of MNI/New York
and Vicki Schmelzer of MNI/New York.
-- A calendar of market events (data, Fed speakers) is below:
     Date/Time ET Prior Data/And MNI Econ Poll Median Estimates 
05-Sep 0730 Fed Gov. Brainard to speak at the Econ Club of NY in NYC 
05-Sep 0945 * Aug ISM-NY current conditions 62.8/--
05-Sep 1000 ** Jul factory new orders 3.0%/-3.1%
05-Sep 1000 ** Jul factory orders ex transport -0.2%/+0.2%
05-Sep 1000 ** Sep IBD/TIPP Optimism Index 52.2/--
05-Sep 1000 * Aug ETI 133.77 
05-Sep 1130am ET US Tsy $39.0B 13-Week Bill auction  
05-Sep 1130am ET US Tsy $33.0B 26-Week Bill auction  
05-Sep 1300pm ET US Tsy $25.0B 8-Day Bill auction. 
05-Sep 1300pm ET US Tsy $20.0B 4-Week Bill auction 
05-Sep 1310 MinnFed Kashkari:guided Q&A:Carlson Schl Mgmt Minnepls Q/A 
05-Sep 1900 Dallas Fed Kaplan: guided Q&A in Dallas; Q/A 
06-Sep 0700 ** 01-Sep MBA Mortgage Applications -2.3%/-- %
06-Sep 0830 ** Jul trade balance -$43.6B/-$44.8B USD
06-Sep 0855 ** 02-Sep Redbook retail sales m/m +0.2%/-- %
06-Sep 0945 *** Aug Markit Services Index (final) 56.9/--
06-Sep 1000 *** Aug ISM Non-manufacturing Index 53.9/55.6
06-Sep 1000 * Q1 QCEW employment --/-- m 
06-Sep 1400 Fed Reserve releases Beige Bk for Sep19-20 FOMC mtg;Wash DC
06-Sep 1500 * Aug Treasury STRIPS Holdings --B/-- b USD
07-Sep 0830 ** 02-Sep initial weekly jobless claims 236K/246K 
07-Sep 0830 ** Q2 non-farm productivity (f) 0.9%/1.2%
07-Sep 0830 ** Q2 unit labor costs (f) 0.6%/0.6%
07-Sep 0945 * 03-Sep Bloomberg comfort index --/--
07-Sep 1000 * Q2 Service Revenue -1.3%/-- %
07-Sep 1030 ** 01-Sep natural gas stocks w/w --/-- Bcf
07-Sep 1100 ** 01-Sep crude oil stocks ex. SPR w/w -5.4/-- m bbl
07-Sep 12:15pm ET: Cleveld Fed Mester:Econ outlk/pol in Pittsburgh Q/A
07-Sep 1630 ** 06-Sep Fed weekly securities holdings --/-- t USD
07-Sep 1900 NY Fed Dudley:EcoOutlk/Implictn on MonPol:Money Mktrs NY Q&A 
07-Sep 1900 Atl Fed Bostic: Talk on his on econ views in Atlanta, GA; 
07-Sep 2015 KC Fed George On US Econ outlk: Omaha, Neb. Econ Forum 
08-Sep 0845 am ET: Phil Fed Harker:Consumer Fin;credit conf,Philadelphia
08-Sep 1000 ** Jul wholesale inventories 0.4%/ -- %
08-Sep 1000 ** Jul wholesale sales 0.7%/-- %
08-Sep 1100 ** Q3 St. Louis Fed Real GDP Nowcast --/-- %
08-Sep 1115 ** Q3 NY Fed GDP Nowcast --/-- %
08-Sep 1500 * Jul consumer credit $12.4B/$15.0B 
08-Sep 1500 * Aug Treasury Allotments (final) --/ -- b USD
--MNI New York Bureau; tel: +1 212-669-6432; email:

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