Goldman Finds The Treasury Market No Longer Reacts To Economic Data

For all the younger traders in our audience, we would like to inform you that maybe not now, but once upon a time, markets actually used to respond to economic data.  That includes both stocks as well as the market that has been historically considered far "smarter" than equities, the Treasury market. Sadly, as central banks took over, the significance of economic data released declined until recently it has virtually stopped mattering, something we predicted would happen back in 2009 when we warned that soon the only financial report that matters is the Fed's weekly H.4.1 statement.

Today, some six years later, Goldman picks up where we left off nearly a decade ago, and asks "Does the Treasury Market Still Care about Economic Data?"

What it finds is simple (and something even the most lay of market observers these days could have told them): no.

As Goldman's Elad Pashtan writes, "the sensitivity of US Treasury yields to economic data surprises has declined to near record-lows over the last two years. We find that the pattern of reactions to data surprises across the yield curve matches pre-crisis norms—with higher sensitivity for short-term rates than longer-term rates—but the average reactions are much lower; for breakeven inflation reactions to growth data are not discernible from zero."

So if it is not the economy, then what does the "market" respond to?  Take a wild guess:

In contrast, Treasury yields have reacted more strongly to Fed communication, at least according to one measure of policy surprises, and the sensitivity of exchange rates to activity news has increased.

Here are the details:

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