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Treasury prices have traded within a tight range overnight, but are drifting slightly lower as the market braces itself for this morning’s U.S. Employment report. With much of the rest of the world already on holiday, there has been little in the way of fresh news to dwell on, as the focus of the market since the middle part of this week has been towards today’s numbers. Yesterday’s quick slide after the release of the ISM index illustrates the extent to which the market has factored in the idea that an accelerating recovery in the U.S. economy will trigger the start of rate hikes by the Fed. The Treasury market around this week’s lows appears to have priced in one of the largest monthly non-farm payroll gains in almost 28 months. In fact, at and below 115-00 basis the June bonds we suspect that the trade has factored in a gain of 200,000 jobs.
The trade doesn’t seem to be expecting much in the way of change from the unemployment rate, with the main focal point of the trade today centered on the payroll tally. With a Fed member yesterday suggesting that one should not put too much stock in a single payroll reading and a number of economists over the last month expecting a massive impact from the rebound off the severe February weather, it is possible that the Fed is attempting to temper volatility today by pointing out the need for sustained improvement in payrolls. In fact, we suspect that a number above +200,000 will probably result in an aggressive spike down move that will be quickly rejected as the trade realizes the number was artificially boosted. Therefore, it is possible that June Bonds could see a spike down to 113-13, their lowest level since late December and early January. Similarly, June Notes could temporarily fall below the early March lows to lower support of 115-01. In the event that the unemployment rate falls and the work week rises, that could help to sustain the washout that might be inspired by the non farm payroll gain.
While we doubt the trade will face a much smaller than expected Non Farm payroll gain for the month of March, seeing anything less than +100,000 gain in the wake of the mid March washout of 2 points would certainly catch the market both technically and fundamentally oversold, and that in turn could result in a temporary bounce back up to 117-21 basis June bonds and up to 116-24 basis June Notes.
Bond Market Commentary – 2010.04.02
by Dave Hightower on April 2, 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!
Treasury prices have traded within a tight range overnight, but are drifting slightly lower as the market braces itself for this morning’s U.S. Employment report. With much of the rest of the world already on holiday, there has been little in the way of fresh news to dwell on, as the focus of the market since the middle part of this week has been towards today’s numbers. Yesterday’s quick slide after the release of the ISM index illustrates the extent to which the market has factored in the idea that an accelerating recovery in the U.S. economy will trigger the start of rate hikes by the Fed. The Treasury market around this week’s lows appears to have priced in one of the largest monthly non-farm payroll gains in almost 28 months. In fact, at and below 115-00 basis the June bonds we suspect that the trade has factored in a gain of 200,000 jobs.
The trade doesn’t seem to be expecting much in the way of change from the unemployment rate, with the main focal point of the trade today centered on the payroll tally. With a Fed member yesterday suggesting that one should not put too much stock in a single payroll reading and a number of economists over the last month expecting a massive impact from the rebound off the severe February weather, it is possible that the Fed is attempting to temper volatility today by pointing out the need for sustained improvement in payrolls. In fact, we suspect that a number above +200,000 will probably result in an aggressive spike down move that will be quickly rejected as the trade realizes the number was artificially boosted. Therefore, it is possible that June Bonds could see a spike down to 113-13, their lowest level since late December and early January. Similarly, June Notes could temporarily fall below the early March lows to lower support of 115-01. In the event that the unemployment rate falls and the work week rises, that could help to sustain the washout that might be inspired by the non farm payroll gain.
While we doubt the trade will face a much smaller than expected Non Farm payroll gain for the month of March, seeing anything less than +100,000 gain in the wake of the mid March washout of 2 points would certainly catch the market both technically and fundamentally oversold, and that in turn could result in a temporary bounce back up to 117-21 basis June bonds and up to 116-24 basis June Notes.
Tags: Bonds, Financials, Interest Rates, Notes
About Dave Hightower