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Treasury markets traded higher this morning in reaction to the Fed’s quasi move at quantitative easing. The Fed’s decision to reinvest the proceeds from maturing mortgage securities to purchase longer term treasuries has provided a bid throughout the yield curve. As a result, September 10-Year Notes forged another new contract high overnight, and that has pushed yields out to new 16-month lows of 2.717%. Yields on the 2-Year Note have registered a new record low this morning to trade under 0.50%. Global equity markets traded lower overnight led by a 2.36% decline in the Nikkei while European shares traded around 1.0% lower as they factor in recent measures by the Fed along with a downgrade to the U.S. economic outlook. Tuesday’s 3-Year Note auction was very well bid even though it registered a new record low yield of 0.844%. The bid to cover ratio was well above the recent average at 3.31 to 1, at the same time the final yield was one basis point under market levels at the deadline. Perhaps this positive demand will again surface in today’s $24 billion 10-Year Note auction.
The recent decline in yields (rally in prices) since Tuesday afternoon has the potential to make this auction a market mover. Additionally, part of the Fed’s treasury purchase program targets the 2-Year to 10-Year maturities and will be interesting to see how the market absorbs today’s supply. In fact, a noted bank analyst team indicated that the Fed’s purchase of Treasuries under the new plan could total $300 billion over the next 18-months, based on their current portfolio of mortgage securities. In other words, it is a far cry from the Fed’s tone just months ago when they sought out exit strategies.
Spread differentials between the 2-Year and 10-Year notes have continued to flatten out in response to the Fed decision and have come in to 221 basis points (settled 227 Tuesday).September bond futures continue to hold the uptrend pattern with key support levels that have ratcheted higher after Tuesday’s surge to stand at 129-03. There is a similar pattern in the September 10-Year notes, which now has support below at 124-09. However, of concern are technical momentum indicators that have become overbought during the recent advance and have begun to diverge from current high price levels.
The bulls have the edge to start this morning, but a favorable reading in this morning’s economic statistics or a disappointing result in today’s 10-year Note auction could disrupt the advance.
Interest Rate Market Commentary – 2010.08.11
by Dave Hightower on August 11, 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 markets traded higher this morning in reaction to the Fed’s quasi move at quantitative easing. The Fed’s decision to reinvest the proceeds from maturing mortgage securities to purchase longer term treasuries has provided a bid throughout the yield curve. As a result, September 10-Year Notes forged another new contract high overnight, and that has pushed yields out to new 16-month lows of 2.717%. Yields on the 2-Year Note have registered a new record low this morning to trade under 0.50%. Global equity markets traded lower overnight led by a 2.36% decline in the Nikkei while European shares traded around 1.0% lower as they factor in recent measures by the Fed along with a downgrade to the U.S. economic outlook. Tuesday’s 3-Year Note auction was very well bid even though it registered a new record low yield of 0.844%. The bid to cover ratio was well above the recent average at 3.31 to 1, at the same time the final yield was one basis point under market levels at the deadline. Perhaps this positive demand will again surface in today’s $24 billion 10-Year Note auction.
The recent decline in yields (rally in prices) since Tuesday afternoon has the potential to make this auction a market mover. Additionally, part of the Fed’s treasury purchase program targets the 2-Year to 10-Year maturities and will be interesting to see how the market absorbs today’s supply. In fact, a noted bank analyst team indicated that the Fed’s purchase of Treasuries under the new plan could total $300 billion over the next 18-months, based on their current portfolio of mortgage securities. In other words, it is a far cry from the Fed’s tone just months ago when they sought out exit strategies.
Spread differentials between the 2-Year and 10-Year notes have continued to flatten out in response to the Fed decision and have come in to 221 basis points (settled 227 Tuesday).September bond futures continue to hold the uptrend pattern with key support levels that have ratcheted higher after Tuesday’s surge to stand at 129-03. There is a similar pattern in the September 10-Year notes, which now has support below at 124-09. However, of concern are technical momentum indicators that have become overbought during the recent advance and have begun to diverge from current high price levels.
The bulls have the edge to start this morning, but a favorable reading in this morning’s economic statistics or a disappointing result in today’s 10-year Note auction could disrupt the advance.
Tags: Bonds, Interest Rates, Notes
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