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The Treasury markets reached another peak yesterday in the wake of a one/two punch of much weaker than expected US existing home sales figures and noted weakness in US equities. Recently the Treasury market wasn’t being presented with enough weakness in the equity markets to markedly degrade macro economic sentiment, but in the Tuesday trade, the market was presented with what seemed to be a roundly bullish overall environment. With the market also seeing a favorable US auction result in the trade yesterday and statements from the Fed suggesting the odds of a double dip recession were growing, there were a number of unrelated events that favored the bull camp. In looking ahead, the markets might be set to see a somewhat positive US Durable goods report, as the range of estimates for the Durables are mostly touting a “positive” reading. However, in the event that the durable goods report fails to meet most expectations, the trade could still come away from the report with ongoing concern toward overall growth in the US economy.
Since the Fed’s economic symposium doesn’t officially kick off until later this week that could reduce the flow of Fed dialogue today but we suspect that the market will be on the hunt for any statements from Fed officials in transit to the meeting. The market will be presented with another auction today of $36 billion in 5 Year notes and given the strong bid to cover ratio in other issues recently, many traders think the auction results will continue to be lightly supportive of Treasury prices.
While the Press was already touting the prospect of a Bond bubble in the headlines over the last several months, yields weren’t as low as they are now and the Notes and bonds weren’t “net Spec long” in the weekly Non Commercial and Non reportable COT positioning reports. With many US Treasury yields so low, that a minor pick up in inflation could present investors with a very minimal inflation adjusted return, the rational for snapping up US Treasuries could be called into question. However, as long as the fear of slowing and a double dip recession remains the focal point of the trade, Treasuries will probably stay in vogue.
In looking ahead to the scheduled data today, it is possible that rather dire macro economic concerns might be tempered slightly, as a housing report today isn’t expected to be as “headline soft” as the Existing home sales figures were yesterday and the durables report is actually expected eek out a positive result. With the range up move yesterday seemingly factoring in some form of additional quantitative easing move by the US Fed, some traders are suggesting that the official word on QE/asset purchases from the upcoming Fed symposium might result in a temporary peak in Treasury prices off a buy the rumor/sell the fact market reaction. However, others in the bull camp suggest that weakening in the economy is likely to continue and that the next US payroll report is likely to confirm the slowing and that could allow prices to make even higher highs.
Interest Rate Market Commentary 2010.08.25
by Dave Hightower on August 25, 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 markets reached another peak yesterday in the wake of a one/two punch of much weaker than expected US existing home sales figures and noted weakness in US equities. Recently the Treasury market wasn’t being presented with enough weakness in the equity markets to markedly degrade macro economic sentiment, but in the Tuesday trade, the market was presented with what seemed to be a roundly bullish overall environment. With the market also seeing a favorable US auction result in the trade yesterday and statements from the Fed suggesting the odds of a double dip recession were growing, there were a number of unrelated events that favored the bull camp. In looking ahead, the markets might be set to see a somewhat positive US Durable goods report, as the range of estimates for the Durables are mostly touting a “positive” reading. However, in the event that the durable goods report fails to meet most expectations, the trade could still come away from the report with ongoing concern toward overall growth in the US economy.
Since the Fed’s economic symposium doesn’t officially kick off until later this week that could reduce the flow of Fed dialogue today but we suspect that the market will be on the hunt for any statements from Fed officials in transit to the meeting. The market will be presented with another auction today of $36 billion in 5 Year notes and given the strong bid to cover ratio in other issues recently, many traders think the auction results will continue to be lightly supportive of Treasury prices.
While the Press was already touting the prospect of a Bond bubble in the headlines over the last several months, yields weren’t as low as they are now and the Notes and bonds weren’t “net Spec long” in the weekly Non Commercial and Non reportable COT positioning reports. With many US Treasury yields so low, that a minor pick up in inflation could present investors with a very minimal inflation adjusted return, the rational for snapping up US Treasuries could be called into question. However, as long as the fear of slowing and a double dip recession remains the focal point of the trade, Treasuries will probably stay in vogue.
In looking ahead to the scheduled data today, it is possible that rather dire macro economic concerns might be tempered slightly, as a housing report today isn’t expected to be as “headline soft” as the Existing home sales figures were yesterday and the durables report is actually expected eek out a positive result. With the range up move yesterday seemingly factoring in some form of additional quantitative easing move by the US Fed, some traders are suggesting that the official word on QE/asset purchases from the upcoming Fed symposium might result in a temporary peak in Treasury prices off a buy the rumor/sell the fact market reaction. However, others in the bull camp suggest that weakening in the economy is likely to continue and that the next US payroll report is likely to confirm the slowing and that could allow prices to make even higher highs.
Tags: Bonds, Financials, Interest Rates, Notes
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