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The Treasury bond market looks set to start the US trade at the top of the recent consolidation and seemingly poised to probe higher levels. In the wake of the scheduled US data flow on Tuesday, the Treasury market has the justification to price in its concern for the US economy. With Pending home sales falling to a fresh record low reading, the trade actually saw evidence that hints at something more than a listless economic track. In other words, talk of a double dip recession enters the equation again and that in turn probably increases the focus on the scheduled data due out later today.
With the market swirling talk of renewed quantitative easing from the US Fed earlier this week that has also created a mostly bullish environment for bonds and notes. While initial expectations of a 50,000 to 75,000 Non Farm payroll loss on Friday morning, on its face, doesn’t seem to signal a huge contraction in the economy, for many that type of reading could confirm that the US economy is moving in the wrong direction. However, given the noted weakness in the US Dollar and the relative proximity to all time highs in Bonds and Notes, it is possible that Treasuries might have a marginally weaker Friday reading already factored into the equation.
At least in the near term, the Treasury market doesn’t seem to be overly concerned with oversupply or creditworthiness issues, but that might be the only angle the bear camp can hope to play up in the current environment. There will be a quarterly refunding announcement this morning, but it just doesn’t appear like the trade is poised to foment and embrace fears of rising supply. One would think that a slow economy would be producing reduced tax inflows to the US government and that in turn would manifest larger borrowing needs, but the US government is masterful in disguising its borrowing needs with accounting methods that would be considered illegal in the private sector. In other words, downside action in bonds and notes might be difficult to engineer in the near term, especially given the pattern of recent US data flows and a choppy to weaker global equity market track.
The bulls will suggest that bonds deserve to move back to and perhaps above the old highs, because of the additive influence of quantitative easing expectations from the Fed and with the renewed deflation fears in the marketplace it would appear that the bull camp has a pretty solid case. Initial resistance is seen up at the old high close of 128-27 and then again up at 129-07 in September bonds. Similar resistance in September Notes is seen at 124-08, which is the old high.
Interest Rate Market Commentary – 2010.08.04
by Dave Hightower on August 4, 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 bond market looks set to start the US trade at the top of the recent consolidation and seemingly poised to probe higher levels. In the wake of the scheduled US data flow on Tuesday, the Treasury market has the justification to price in its concern for the US economy. With Pending home sales falling to a fresh record low reading, the trade actually saw evidence that hints at something more than a listless economic track. In other words, talk of a double dip recession enters the equation again and that in turn probably increases the focus on the scheduled data due out later today.
With the market swirling talk of renewed quantitative easing from the US Fed earlier this week that has also created a mostly bullish environment for bonds and notes. While initial expectations of a 50,000 to 75,000 Non Farm payroll loss on Friday morning, on its face, doesn’t seem to signal a huge contraction in the economy, for many that type of reading could confirm that the US economy is moving in the wrong direction. However, given the noted weakness in the US Dollar and the relative proximity to all time highs in Bonds and Notes, it is possible that Treasuries might have a marginally weaker Friday reading already factored into the equation.
At least in the near term, the Treasury market doesn’t seem to be overly concerned with oversupply or creditworthiness issues, but that might be the only angle the bear camp can hope to play up in the current environment. There will be a quarterly refunding announcement this morning, but it just doesn’t appear like the trade is poised to foment and embrace fears of rising supply. One would think that a slow economy would be producing reduced tax inflows to the US government and that in turn would manifest larger borrowing needs, but the US government is masterful in disguising its borrowing needs with accounting methods that would be considered illegal in the private sector. In other words, downside action in bonds and notes might be difficult to engineer in the near term, especially given the pattern of recent US data flows and a choppy to weaker global equity market track.
The bulls will suggest that bonds deserve to move back to and perhaps above the old highs, because of the additive influence of quantitative easing expectations from the Fed and with the renewed deflation fears in the marketplace it would appear that the bull camp has a pretty solid case. Initial resistance is seen up at the old high close of 128-27 and then again up at 129-07 in September bonds. Similar resistance in September Notes is seen at 124-08, which is the old high.
Tags: Bonds, Financials, Interest Rates, Notes
About Dave Hightower