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Treasury prices remain in a weak downward bias but instead of entering the session somewhat overbought and vulnerable, the washouts in the prior two sessions should leave the market with a little more technical balance. However, the bear camp is likely to remain in control, as world equity market gains signal an ongoing deflation of flight to quality concerns toward the Euro zone. Apparently the markets are willing to down grade the threat of further contagion news in the short term, as the trade basically discounted news yesterday afternoon that S&P had put the city of Rome’s A+ rating on a negative watch and that yet that story was given little if any attention. The US Treasury’s auction of $31-Bln in 7-year notes yesterday came in with a yield of 2.815%, with a bid to cover ratio of 2.88 to 1, which is better then the recent average. The last 7-yr auction on April 29th came in at a yield of 3.215% and therefore the latest auction cycle is now passed with moderately favorable demand seen in an environment that should have yielded stellar results. In looking forward the market will be presented with Personal Income and Personal Spending readings as well as a PCE reading early today. We doubt that one of the Fed’s pet inflation measures (the PCE) is going to provide anything in the way of bearish fodder for prices this morning, but it is possible that the Personal Income and Spending readings will provide a light but brief measure of pressure to prices. The market will also see some consumer sentiment readings later in the session and those might provide a minor but brief boost in prices. In the current environment, scheduled data will continue to have limited impact, as the future remains highly suspect and dependant on the next iteration from the Euro zone debt saga. In the face of another upside extension in equities, signs of favorable readings from Personal Income and Spending, we suspect that September bonds will see a slide down to and below the 122-00 level, with a similar slide in September Notes seen down to 119-04 initially this morning. However, we would also expect to see a slight positive bid return to the Treasury market ahead of the close today, as the long weekend might prompt some buyers to go out with a longer position just in case a fresh Euro issue finds its way into the headlines. Therefore we see the Treasury market to be the most vulnerable early in the trading session this morning, as the positive spillover from the international equity markets and the initial US numbers weigh on prices. Critical resistance in the September bonds today is seen at 122-18 early, with similar resistance in September Notes pegged at 119-22. If there is a surprise from the data this morning, we suspect that will come in the form of a slightly bigger decline in the Michigan sentiment readings, as the influence of the early May debacle, could be seen in these numbers this morning. Therefore, the bears control looks to be in place until just ahead of 9:00 cst.
Interest Rate Commentary – 2010.05.28
by Dave Hightower on May 28, 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 remain in a weak downward bias but instead of entering the session somewhat overbought and vulnerable, the washouts in the prior two sessions should leave the market with a little more technical balance. However, the bear camp is likely to remain in control, as world equity market gains signal an ongoing deflation of flight to quality concerns toward the Euro zone. Apparently the markets are willing to down grade the threat of further contagion news in the short term, as the trade basically discounted news yesterday afternoon that S&P had put the city of Rome’s A+ rating on a negative watch and that yet that story was given little if any attention. The US Treasury’s auction of $31-Bln in 7-year notes yesterday came in with a yield of 2.815%, with a bid to cover ratio of 2.88 to 1, which is better then the recent average. The last 7-yr auction on April 29th came in at a yield of 3.215% and therefore the latest auction cycle is now passed with moderately favorable demand seen in an environment that should have yielded stellar results. In looking forward the market will be presented with Personal Income and Personal Spending readings as well as a PCE reading early today. We doubt that one of the Fed’s pet inflation measures (the PCE) is going to provide anything in the way of bearish fodder for prices this morning, but it is possible that the Personal Income and Spending readings will provide a light but brief measure of pressure to prices. The market will also see some consumer sentiment readings later in the session and those might provide a minor but brief boost in prices. In the current environment, scheduled data will continue to have limited impact, as the future remains highly suspect and dependant on the next iteration from the Euro zone debt saga. In the face of another upside extension in equities, signs of favorable readings from Personal Income and Spending, we suspect that September bonds will see a slide down to and below the 122-00 level, with a similar slide in September Notes seen down to 119-04 initially this morning. However, we would also expect to see a slight positive bid return to the Treasury market ahead of the close today, as the long weekend might prompt some buyers to go out with a longer position just in case a fresh Euro issue finds its way into the headlines. Therefore we see the Treasury market to be the most vulnerable early in the trading session this morning, as the positive spillover from the international equity markets and the initial US numbers weigh on prices. Critical resistance in the September bonds today is seen at 122-18 early, with similar resistance in September Notes pegged at 119-22. If there is a surprise from the data this morning, we suspect that will come in the form of a slightly bigger decline in the Michigan sentiment readings, as the influence of the early May debacle, could be seen in these numbers this morning. Therefore, the bears control looks to be in place until just ahead of 9:00 cst.
Tags: Bonds, Financials, Interest Rates, Notes
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