Morgan Stanley predicts that when the warm weather comes, it will be clear that most of the data weakness was due to the harsh weather, and that people will sell Treasuries when they realise this.
From interest rate strategist Matthew Hornbach:
Treasuries in Trouble
A strong nonfarm payroll report following on the heels of hawkish comments from New York Fed President Dudley and San Francisco Fed President Williams leave us even more bearish on Treasuries than we were last week. With small upward revisions to previous months, the cumulative average in monthly nonfarm payroll changes since QE∞ began remained stable month-on-month — falling only 1k, to 193k.
Other than the better-than-consensus headline print, the number of people not at work due to bad weather — a question asked in the Household survey — was at its highest level for a February since 2010. Exhibit 2 shows the series from the Household survey for the month of February historically. Aside from February 2010, February 2014 had the highest number of people not at work due to weather since 1978 (on a seasonally unadjusted basis).
As if investors needed more evidence that weather impacted economic data over the past two months, our US economists analysed the number of references to the word “weather” in the Beige books released over the last two winters. While in 2013, references jumped from 3 in January to 18 in March, this year they leapt from 21 to 119.
If you haven’t seen it, this is the chart that shows the massive number of people who said they were away from work in February due to weather.
Bottom line, when the weather lets up, people will drop the idea that the economy is weakening, or that the Fed will reverse course on tapering, and Treasuries will sell off.
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