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The Treasury market flared last week in the wake of a much stronger than expected series of US Treasury auctions and in the face of a partial break down in the equity markets. With no auction supply concerns this week, an indirect tightening move seen by the Chinese overnight and ongoing weakness in equities, that should leave the bear camp with the near term edge. The market will see a Treasury Capital Flows report this morning and that could offer up some surprises, as we think the foreign contribution to the US auctions is beginning to taper off. However, the Treasury Cap Flows report might not be given as much attention as the NAHB report at mid session, unless the flows report offers up a distinct surprise. While the NAHB Index is generally expected to rise, we doubt that the trade will be noticeably undermined as a result of that report. With the overnight economic news from the Euro zone soft and the Chinese moving to raise a discount yield on 1 year paper, it is possible that the Treasury trade will see the overall macro economic tilt as somewhat soft. In fact, with the Bankruptcy filing of JAL overnight and the trade anticipating the Citigroup earnings report early today, there could have been a conclusively bearish early tilt in the equity markets. However, Treasury prices only slightly lower in the face of the overnight news and that would seem to suggest that prices last week were in some way slightly overdone. The January 12th Commitment of Traders with Options report for U.S. Treasury Bonds showed the Non-commercial position to be net short 93,176 contracts, with the Non-reportable position net short 41,616 contracts, and that made the “combined” spec and fund position net short 134,792 contracts as of early last week. Similarly the January 12th Commitment of Traders with Options report for US Treasury 10 Year Notes showed the Non-commercial position to be net short 211,515 contracts, with the Non-reportable position net short 46,140 contracts, and that made the “combined” spec and fund position net short 257,655 contracts as of early last week. Therefore, the Treasury market was certainly capable of some technical short covering but with the Bond market at times last week, sitting as much as 3 1/2 points above the December lows, one can hardly suggest that more short covering is needed in the market. However, given the pre-existing bullish bias, in the wake of the sufficient auction action last week, anything disappointing from Citigroup and or from the equity markets could leave the path of least resistance pointing upward in Treasuries. Countervailing the minimal upward bias is the fact that UK inflation readings in December, managed the largest annual inflation jump in roughly 31 years! We will give the market some time this morning to firm up, but the failure to firm in the face of Chinese tightening and weak equities, could be seen as a sign that the short covering action has run its course and that fresh outright buyers aren’t exactly present in large numbers. Overall, expect a tight trading range unless the Treasury Capital Flows report provides evidence of a distinct retrenchment of foreign players.
Bond Market Commentary – 2010.01.19
by Dave Hightower on January 19, 2010
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
The Treasury market flared last week in the wake of a much stronger than expected series of US Treasury auctions and in the face of a partial break down in the equity markets. With no auction supply concerns this week, an indirect tightening move seen by the Chinese overnight and ongoing weakness in equities, that should leave the bear camp with the near term edge. The market will see a Treasury Capital Flows report this morning and that could offer up some surprises, as we think the foreign contribution to the US auctions is beginning to taper off. However, the Treasury Cap Flows report might not be given as much attention as the NAHB report at mid session, unless the flows report offers up a distinct surprise. While the NAHB Index is generally expected to rise, we doubt that the trade will be noticeably undermined as a result of that report. With the overnight economic news from the Euro zone soft and the Chinese moving to raise a discount yield on 1 year paper, it is possible that the Treasury trade will see the overall macro economic tilt as somewhat soft. In fact, with the Bankruptcy filing of JAL overnight and the trade anticipating the Citigroup earnings report early today, there could have been a conclusively bearish early tilt in the equity markets. However, Treasury prices only slightly lower in the face of the overnight news and that would seem to suggest that prices last week were in some way slightly overdone. The January 12th Commitment of Traders with Options report for U.S. Treasury Bonds showed the Non-commercial position to be net short 93,176 contracts, with the Non-reportable position net short 41,616 contracts, and that made the “combined” spec and fund position net short 134,792 contracts as of early last week. Similarly the January 12th Commitment of Traders with Options report for US Treasury 10 Year Notes showed the Non-commercial position to be net short 211,515 contracts, with the Non-reportable position net short 46,140 contracts, and that made the “combined” spec and fund position net short 257,655 contracts as of early last week. Therefore, the Treasury market was certainly capable of some technical short covering but with the Bond market at times last week, sitting as much as 3 1/2 points above the December lows, one can hardly suggest that more short covering is needed in the market. However, given the pre-existing bullish bias, in the wake of the sufficient auction action last week, anything disappointing from Citigroup and or from the equity markets could leave the path of least resistance pointing upward in Treasuries. Countervailing the minimal upward bias is the fact that UK inflation readings in December, managed the largest annual inflation jump in roughly 31 years! We will give the market some time this morning to firm up, but the failure to firm in the face of Chinese tightening and weak equities, could be seen as a sign that the short covering action has run its course and that fresh outright buyers aren’t exactly present in large numbers. Overall, expect a tight trading range unless the Treasury Capital Flows report provides evidence of a distinct retrenchment of foreign players.
Tags: Bonds, Financials, Interest Rates
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