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The Treasury market surprisingly showed some weakness yesterday in the face of news that the US planned to undertake more deficit spending to pay for an extension of unemployment insurance. Congress was divided over cutting from the existing budget and simply adding the spending on to the overall debt tally. The GOP was apparently for the extension, but wanted the spending paid for with offsetting budget cuts. In the end, the Treasury market saw the prospect for more debt supply ahead as Congress was expected to pass the measure soon. It is also possible that part of the weakness in the prior trading session was the result of comments from a Chinese economist that China should reduce its exposure to US debt and part of the setback might simply have been the result of a better than expected NYSE stock market opening on Monday morning.
In the end, the market saw a decline in the NAHB Index and the softest reading in that report since the fall of 2009 and that kept the string of softer than expected economic readings intact. With the US housing starts and permits data due out today and the general expectations calling for weakness in those readings, we have to think that the Monday lows and the early morning lows today, are going to be solid support from which the Treasury market will attempt to work higher from.
We do think that this market is prone to becoming overbought and perhaps prone to temporary lapses of buying interest, especially if the Dollar fails again, as that action could chase away some foreign investors. In fact, part of the weakness in the prior trading session might have come from the combination of suspicions that US Treasuries were losing their flight to quality status. However, in the event that the housing permits come in weaker than expectations that could clearly rekindle the talk of a double dip recession and since the semi annual Fed testimony doesn’t start until Wednesday, that could give the double dip crowd 24 hours to lift Treasury prices.
The Permits number could be the key figure in the release schedule today, as that reading tends to be a leading indicator and therefore a bigger than expected decline in permits could be justification for Treasury bond prices to quickly return to their early July highs. Countervailing the upward tilt in Treasury prices is a sense that the European stress tests results at the end of the week are likely to see most financial entities pass. There are some concerns that a European real estate bank might fail the stress test but there are funds available to plug the holes for those in need of cash. In short, the bias is up with close-in support in September Bonds seen at 127-13, with similar support in September Notes seen at 122-29.
As suggested before, there might not be much in the way of resistance this morning if the housing data is softer than expected, but first resistance in September bonds is pegged at 128-13, with resistance in September Notes pegged at 123-13. The bear’s biggest risk today comes in the direct aftermath of the Housing Permits release, but the equity markets and the currency markets don’t seem to be overly sensitive to potential flight to quality issues within the Euro zone today.
Interest Rate Market Commentary – 2010.07.20
by Dave Hightower on July 20, 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 surprisingly showed some weakness yesterday in the face of news that the US planned to undertake more deficit spending to pay for an extension of unemployment insurance. Congress was divided over cutting from the existing budget and simply adding the spending on to the overall debt tally. The GOP was apparently for the extension, but wanted the spending paid for with offsetting budget cuts. In the end, the Treasury market saw the prospect for more debt supply ahead as Congress was expected to pass the measure soon. It is also possible that part of the weakness in the prior trading session was the result of comments from a Chinese economist that China should reduce its exposure to US debt and part of the setback might simply have been the result of a better than expected NYSE stock market opening on Monday morning.
In the end, the market saw a decline in the NAHB Index and the softest reading in that report since the fall of 2009 and that kept the string of softer than expected economic readings intact. With the US housing starts and permits data due out today and the general expectations calling for weakness in those readings, we have to think that the Monday lows and the early morning lows today, are going to be solid support from which the Treasury market will attempt to work higher from.
We do think that this market is prone to becoming overbought and perhaps prone to temporary lapses of buying interest, especially if the Dollar fails again, as that action could chase away some foreign investors. In fact, part of the weakness in the prior trading session might have come from the combination of suspicions that US Treasuries were losing their flight to quality status. However, in the event that the housing permits come in weaker than expectations that could clearly rekindle the talk of a double dip recession and since the semi annual Fed testimony doesn’t start until Wednesday, that could give the double dip crowd 24 hours to lift Treasury prices.
The Permits number could be the key figure in the release schedule today, as that reading tends to be a leading indicator and therefore a bigger than expected decline in permits could be justification for Treasury bond prices to quickly return to their early July highs. Countervailing the upward tilt in Treasury prices is a sense that the European stress tests results at the end of the week are likely to see most financial entities pass. There are some concerns that a European real estate bank might fail the stress test but there are funds available to plug the holes for those in need of cash. In short, the bias is up with close-in support in September Bonds seen at 127-13, with similar support in September Notes seen at 122-29.
As suggested before, there might not be much in the way of resistance this morning if the housing data is softer than expected, but first resistance in September bonds is pegged at 128-13, with resistance in September Notes pegged at 123-13. The bear’s biggest risk today comes in the direct aftermath of the Housing Permits release, but the equity markets and the currency markets don’t seem to be overly sensitive to potential flight to quality issues within the Euro zone today.
Tags: Bonds, Financials, Interest Rates, Notes
About Dave Hightower