Sensitivity to macro announcement surprises not always the same

 

Asset prices will respond to economic surprises. This is expected. When new unanticipated information enters the market, prices will adjust; however, the sensitivity to these surprises is not consistent. For example, 10-year yields are more sensitive to surprises now than for almost any time over the last two decades as measured through a regression against the Citibank surprise index.

Given the uncertainty about inflation and growth and the current Fed policy of being data-driven, any change in major economic data will generate a greater yield reaction.  This sensitivity will continue until we get new clarity on the direction of rates from the Fed. The sensitivity will then return to its longer-term average. Surprises must be conditioned on the macro environment.