Tag Archives: Notes

Interest Rates: Expect a Bottom to Form After Fed News and 5Yr Supply

by on January 25, 2012

Below is a sample of The Hightower Report’s 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!

While the Treasury market looks to come in above the prior two closes on the charts, the trade is probably hesitant to drive prices sharply in either direction ahead of the FOMC statement that will be released later today. In fact, with the FOMC statement today expected to be accompanied by individual Fed member interest rate forecasts and perhaps by inflation targets, many traders might take a wait and see attitude. However, some Treasury market support might be present this morning from the Euro zone situation, which in turn might be fostered by the avalanche of Press commentary flowing from the Davos conference as that coverage has tended to focus on the negatives from Europe.

The US Treasury market garner some support from news that the UK 4th quarter GDP was negative and also because that reading was slightly below market expectations, as that in turn seemed to keep the fear of a global recession alive. On the other hand, the BOE MPC voted 9-0 to keep its QE efforts unchanged and they also suggested that there was a slightly reduced nearer term threat of a sharp contraction.

In looking ahead to the scheduled US data flows today, market expectations call for a minor contraction in pending home sales figures. Following the home sales release will be an 11:30 AM FOMC statement release, a mid day auction of $35 billion in 5 Year Notes and then a 1:15 Fed Press conference.

With the new format from the Fed offering additional information, it is difficult to predict the reaction in Treasury prices, especially with the rate and inflation forecasts lacking historical reference. Also due out today, is a report on mass layoffs, which could attract some attention, as the flow of scheduled data recently has been a little thin. At least for the coming 8 hours, the focus of the Treasury trade is likely to increase its attention to events on this side of the Atlantic, especially since the Greek debt talks have seemingly returned to square one.

With weaker equities to start, steady demand for the auction yesterday and unresolved Euro zone issues, the bull camp might think that the recent lows are capable of holding up prices. On the other hand, a clean sweep of better than expected US scheduled data and overtly upbeat dialogue from the US Fed, could revive the bearish attitude that seems to have dominated the US Treasury markets since the January 18th highs.

Interest Rates: Due for a Pullback?

by on January 21, 2012

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

While March 30-Year Bond prices climbed to a new 4-week high recently, we feel they are richly priced and vulnerable to a temporary setback. The recent trend of US economic data has shown continued improvement, suggesting that the US recovery could be gaining some momentum. While the US Treasury market will continue to ebb and flow with developments surrounding the European debt debacle, it is possible that the worst of that situation has already been priced into the market. So far in 2012, European debt auctions have gone generally better than expected, and that has helped to thaw short term lending markets in the region. Also, interest rates yields in Italy and Spain have eased from their recent extremes. Those governments have come to the market with new issuance, but so far the market doesn’t appear to be extracting a high cost for their borrowings. One of the market’s primary fears became a reality back on Friday January 13th when Standard and Poor’s downgraded credit ratings on eight European countries, but even that didn’t seem to prompt a typical anxiety event. While that negative headlines generated some safety bids and in turn served to push March Notes above their December highs, March bonds were not able to take out their December highs. Europe’s ability to successfully tap the capital markets could extract some of the fear premium out of the US Treasury market in the coming weeks.

The recent trend of US economic data has provided some hope that the US recovery will begin to stand on its own. The US labor market saw continuing jobless claims fall precipitously from their June 2009 peak of 6.398 million to the lowest level in 13 quarters at 3.657 million as of December 10th. More recently, US June Consumer Confidence climbed to its best level in eight months to 64.5 in December, and manufacturing activity has shown signs of leaving its 2011 summer trough. Additionally, the US housing market has also shown signs of improvement, evidenced by a surge in building permits and construction spending and US housing starts reaching 685,000 in November, their highest level since April 2010. Meanwhile, inflation is beginning to increase, with the December Producer Price Index (excluding food and energy) coming in at an annualized rate of 3.0%, the highest level since June 2009. Coincidentally, there has been a growing chorus of Fed officials that are leaning toward a pro-inflationary stance, as indicated by the continued commitment to extremely low interest rates even in the face of modest inflationary pressures.

While the latest string of US Treasury auctions showed very active participation at extremely low interest rates, there is growing competition from other nations (particularly the Euro zone) as well as from the private sector seeking capital. This could present a challenge in the weeks ahead. If the situation in Europe shows any sign of progress, that could help drive up rates on US Treasuries as they try to attract demand.

March Bonds have traded within a trading of 146-12 to 134-22 over the past four months. The market’s inability to rally to new highs in the wake of the latest European debt downgrade and in the face of recent promises of more easy monetary policy from the US Fed suggests that prices are a bit rich at 145-00.

Suggested Trading Strategy: Trading strategies are available to our customers and trial users of our Research Center. Please sign-in or sign-up for your free trial.

Trading strategies are available to our customers and trial users of our Research Center. Please sign-in or sign-up for your free trial.

Interest Rates: Seems To Discount Credit Rating Downgrades

by on January 17, 2012

Below is a sample of The Hightower Report’s 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!

Apparently the markets have mostly discounted the end of week credit ratings downgrade from Europe, as global equity markets are showing overnight gains. In fact, with Euro zone inflation readings overnight also prompting talk of easing from the ECB, the trade has found a number of issues to distract attention from last week’s downgrades. Even results from a Spanish debt auction overnight appear to have provided some fresh optimism for the equation this morning, as falling yields in the Euro zone go a long way in reversing the anxiety that was put in place late last week by the S&P. Sentiment might be drawing an additional lift from favorable Chinese data overnight, as portions of the trade have come to the conclusion that a downtick in Chinese inflation and signs of weakness in the Chinese GDP figures, have opened up the potential for Chinese easing. However, the slowing in China was limited and that in turn could tamp down fears that China might be flirting with a hard landing. With German ZEW economic expectations overnight showing a massive improvement to a reading of -21.6 from -53.8 in the prior reading, it isn’t surprising to see a quasi risk on tilt in place to start the US holiday shortened week. In the US action today, the market will have a somewhat thin scheduled report slate, with the Empire State Manufacturing report the only report due out. Expectations call for a modest increase in the Empire State figures and that might serve to embolden the bears in Treasuries further, especially if equities see additional lift in the wake of the data. There will be some key financial sector earnings released this morning and in the wake of somewhat disappointing JP Morgan results last week it is possible that bank earnings could damped the initial bullish tilt in equities and physical commodity markets. In looking forward, the markets will see a relatively light US scheduled data slate this week, with Industrial Production and PPI reports due out later this week but those reports aren’t expected to markedly alter existing sentiment.

The Commitments of Traders Futures and Options report as of January 10th for U.S. Treasury Bonds showed Non-Commercial traders were net short 34,694 contracts, an increase of 5,966 contracts. The Commercial traders were net long 15,942 contracts, an increase of 3,503 contracts. The Non-reportable traders were net long 18,752 contracts, an increase of 2,463 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 15,942 contracts. This represents an increase of 3,503 contracts in the net short position held by these traders.

US Treasury 10 Year Notes showed Non-Commercial traders were net long 25,067 contracts, an increase of 15,921 contracts. The Commercial traders were net long 11,164 contracts, an increase of 4,497 contracts. The Non-reportable traders were net short 36,232 contracts, an increase of 20,419 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 11,165 contracts. This represents an increase of 4,498 contracts in the net short position held by these traders.

Interest Rates: Markets Hopeful EU Will Figure Something Out

by on November 30, 2011

Below is a sample of The Hightower Report’s 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!

While the Euro zone situation doesn’t seem to be markedly improved as a result of the latest EU Ministers decision to expand the EFSF, the market continues to be hopeful that something constructive will eventually be patched together (within the coming ten days) which in turn will meet the current liquidity requirements of troubled EU members. In other words, the EU seems to be inclined to take a case by case approach and so far they don’t seem to be poised to implement a Euro bond or an overly aggressively leveraged EFSF fund. With the German November jobless rate overnight falling to the lowest level in 20 years, the Germans aren’t seeing the urgency of the situation and they also seem deaf to the threat of a Euro zone contagion and that might be why their leadership is generally against writing a blank check to put down the speculation against weak EU members. Somewhat surprisingly, a widespread bank downgrade move by S&P overnight didn’t rekindle macro economic anxiety, which in turn left US Treasuries flat footed to start the Wednesday US trade action. In looking forward, the US trade will see an extremely active US scheduled report flow today with a sampling of private jobs/employment estimates, a Pending home sales report, an ISM manufacturing report, a PMI reading and in the early afternoon action, the market will also be presented with a Fed Beige book release. With the Euro zone situation this morning relatively calm, that could allow for a more significant reaction to the private jobs surveys, especially if the employment situation improves, as is generally expected by the trade. While the ADP payroll figure rarely tracks the monthly US official reading, seeing estimates for the report today, calling for a jobs gain that is 40,000 to 50,000 above the prior month’s US non farm payroll gain, it is possible that Treasuries could see a bit of macro-economic pressure early today. With the trade also expecting a minor improvement in the ISM and in the Pending home sales figures, that could give the bear camp some added resolve. However, news that the Euro zone jobless figure touched the highest level since records began and news that the ECB was seeing heavy use of its deposit facility, should mean that concern for the Euro zone will remain a supportive force, even if the economic news from the US gets most of the markets attention this morning. In the event that both private US job sector reports point to US growth today and with the trade still hopeful of something constructive from the EU summit, before the deadline 10 days out, the bear camp might feel like they have a slight measure of control in the trade today.

Risk-Off Mentality Overshadows the Markets; Physical Commodity Liquidation

by on September 22, 2011

Interest Rates: Flight To Quality Lift Continues

by on September 20, 2011

Below is a sample of The Hightower Report’s 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 remained strong throughout the trading session Monday, but it was clear that other flight to quality markets like gold and silver were being overlooked in the wake of the most recent wave of concern over the Euro zone. Renewed concern toward Italy was seen after a downgrade of that sovereign debt to just 5 levels above junk overnight and that keeps the Euro zone anxiety theme in a front and center position. Surprisingly, US Treasuries aren’t seeing additional upside action in the wake of the Italian ratings news, especially since Treasuries were given a psychological boost by statements overnight from a Chinese newspaper, which suggested that the Chinese government would continue to purchase US Treasuries. In another failed reaction, US Treasuries aren’t seeing any definitive overnight lift from a Harvard Business review survey of 1400 international business leaders who apparently feared the world is falling back into a recession. Perhaps Treasury prices became technically overbought from the sharp range up move to start the new trading week yesterday and perhaps the market has paused because of the lack of scheduled economic readings from the US yesterday. With the market seeing US housing starts and permits today and the beginning of a 2 day FOMC meeting, the Treasury trade might return to more of a US economic focus. Expectations for the Housing starts and permits call for slightly weaker or unchanged readings, with some economists holding out hope that ultra low interest rates might have cushioned the US housing market from what seems to be a deteriorating economy.

Overnight European numbers from Germany suggest that the rate of slowing in the German economy was decelerating. In other words, the rate at which things are getting worse in Germany is slowing! All things considered, the US and global economies are generally thought to slowing and US and European officials don’t seem to be doing everything possible to remove the uncertainty that is largely being fostered by their lack of leadership. While the focus of the markets seem to be heavily focused on the ebb and flow of the Euro zone debt situation, a very large measure of uncertainty is also arising from the lack of patriotism and statesmanship from US leaders. In other words, the political agendas in the US and the election of 2012 continue to take precedence over the economy. Perhaps the inability to get the second half of the necessary spending cuts in place, before the deadline, will be a good thing, as then mechanical cuts in spending will take place and the politicians can rightfully claim they didn’t vote to cut payments to their backers. In the short term, the market focus will remain on the Greek and Italian debt situations, with a temporary shift in focus toward the US housing situation this morning. With a two day FOMC meeting starting today, speculation on the operation twist program is likely to rise, but traders and analysts generally think that the program won’t have a noted impact on the economy. With a slight attempt to bounce in equities early this morning and the Treasury market potentially short term overbought into yesterday’s highs, a modest corrective track this morning is not that surprising.

Unless there is surprise forward movement on another payment to Greece, it might be difficult to remove the flight to quality vibe in US Treasuries, especially with the Chinese seemingly leaking news of their support for US instruments overnight.

Interest Rates: QE3 Rumors Continue; EU Numbers Point to Weakness

by on September 1, 2011

Below is a sample of The Hightower Report’s 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 forged a quasi downside breakout overnight but the market was able to reject that move and partially regain its footing into the US Thursday trade action. Once again overnight economic news from the Euro zone fostered fears of weakness, as Euro zone manufacturing technically returned to a contracting status with its decline back below 50.0. However, the focus of the trade is likely to shift fully toward the US economic report slate, with claims, Productivity, Construction spending and an ISM manufacturing Index released this morning. The market will also be presented with Federal Discount rate window borrowings, foreign central bank holdings, A Fed speech and a flurry of domestic auto sales figures and therefore the market is likely to come away from the next 48 hours, with a more definitive view toward the US economy. With today’s data also coming in just ahead of monthly payroll data on Friday morning, price action today might be partially restricted, as some traders wait for the government’s primary monthly measure on Friday morning. While the market has alternatively embraced expectations of additional easing from the US Fed at some point in the near future, the trend of the data over the last two weeks has clouded the expected timing of additional easing. In fact, with a divided Fed apparent from the last meeting minutes and recent dialogue reiterating that conflict, there are some “fence sitters” in voting positions at the Fed and therefore it could take a below expectation non farm payroll reading just to give the easing stance the upper hand again. With a quasi downside breakout in ongoing claims last week, putting that measure at the lowest level since September of 2008, the continuing claims reading this morning could preempt the monthly reading on Friday morning. However, some economists are discounting the downside breakout in ongoing claims and that could leave the initial claims as the key event of today’s action. On the other hand, Productivity readings could take on added importance, as some Fed members might want the added cushion of strong productivity trends, to go ahead and add further easing to the equation. It does seem as if QE3 is regaining some credence, but given the political and economic stigma attached to that form of support, it could still take clear cut recession fears to see a quick implementation of fresh easing from the Fed. In the end, seeing ISM manufacturing readings this morning fall back into a contractionary posture could be enough to convince traders that more easing is on the way.

Economic slowing concerns, ECB, and US down-grade causing volatility

by on August 8, 2011

Economic slowing concerns, ECB, and US debt down-grade causing volatility in all markets today.

Bonds: US Rating Downgrade, EU Debt Problems, and General Slowing Infulence

by on August 8, 2011

Below is a sample of The Hightower Report’s 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 rumored downgrade of the US has echoed around the globe over the weekend and at least initially equities are down hard, gold has exploded and most commodities are being deflated. While September bonds are times were almost as much as 4 full points below last Friday’s highs, in the wake of the ratings cut, they have partially recovered, despite the threat of yet another downgrade for the US in the coming 6 months in the event that more spending isn’t cut. With 2 year notes at times reaching record low yields, in the wake of the post Friday close downgrade, the trade saw some flight to quality flow toward US Treasuries.

In addition to the downgrade, the US will have to contend with a series of auctions and an FOMC meeting this week. At least to start the week, the US scheduled data flow will be limited, but the markets might still be a little shell shocked in the wake of the better than expected US Non farm payroll report from last Friday. The market also sees some minor confidence off news that the ECB launched a program of buying of certain Euro zone bonds, which for the time being has reduced the threat of a breakdown in Euro zone debt instruments.

From Washington, the blame game has made it clear that many legislators still don’t hear what the ratings agencies are saying, which is that even more deficit reduction is required. In fact, until the Special Committee is heard from and the US offers up more credible deficit reduction moves, the threat of another downgrade and a risk off environment might be expected to prevail. In short, the markets seem to equate further slowing with US financial turmoil, but according to recent Fed statements, it will take signs of falling inflation for the Fed to make any fresh policy moves. However, sentiment for the Tuesday FOMC meeting is already expecting the Fed to soften its official stance, with its “low rates for an extended period of time” mantra back in the spotlight.

The Commitments of Traders Futures and Options report as of August 2nd for U.S. Treasury Bonds showed Non-Commercial traders were net short 49,773 contracts, a decrease of 8,913 contracts. The Commercial traders were net long 34,391 contracts, an increase of 5,212 contracts. The Non-reportable traders were net long 15,381 contracts, a decrease of 14,125 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 34,392 contracts. This represents an increase of 5,212 contracts in the net short position held by these traders. The Commitments of Traders Futures and Options report as of August 2nd for US Treasury 10 Year Notes showed Non-Commercial traders were net short 41,765 contracts, an increase of 55,352 contracts which represents a change from a net long to net short position. The Commercial traders were net long 55,580 contracts, an increase of 32,236 contracts. The Non-reportable traders were net short 13,816 contracts, a decrease of 23,114 contracts. Non-Commercial and Non-reportable combined traders held a net short position of 55,581 contracts. This represents an increase of 32,238 contracts in the net short position held by these traders. Given the net spec short positioning in bonds and notes some of the buying in the market of late could have been classic short covering.

Interest Rates: It’s All About the Debt Debate

by on July 26, 2011

Below is a sample of The Hightower Report’s 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!

A fresh lower low for the move overnight in September Bonds would seem to be the result of ongoing concern for the lack of a US debt ceiling deal. However, a 50 basis point Indian rate hike overnight, slack German Consumer sentiment readings, a very minimal gain in a UK GDP reading for the 2nd quarter and generally weaker global equity market action seems to have provided a mostly supportive environment for US Treasuries this morning. However, the news cycle from the Washington arena will probably crank up again well ahead of the scheduled data flow this morning, which as we have mentioned will be fairly active from the US today. In addition to the headline readings of New Home sales and Consumer Confidence, the markets will also see a private home price survey and a regional Fed manufacturing survey.

While expectations call for minor declines in Home prices and Consumer Confidence readings, the trade is somewhat mixed on the New home sales result. The market will also see some supply flow today and that might be one of the more effective measures of confidence, or the lack of confidence toward US Treasury Instruments available today. However, some traders are still suggesting that the capacity to make a new low for the move overnight was the result of increased concern of a possible credit rating agency downgrade of US debt, which in turn was directly related to the exchange from the Speaker of the House and the President of the United States last night. In other words, some traders think the lack of a strong deal, which raises the debt ceiling and then promises to come up with more spending cuts down the road, might not satisfy those making the decisions on the US credit standing.

Furthermore, if the President were to unilaterally raise the debt ceiling, with a debatable legal move that could simply pressure the credit rating agencies into acting because that increases the political conflict in the US. Another issue that might have contributed to some pressure in Treasury prices over the past 24 hours, is the raising of futures margins and a tightening of margin credit rules. With the debt deadline directly ahead and Washington generally giving off the impression that the US government is in a dysfunctional mess, it makes sense to prepare for a significant and perhaps ongoing increase in volatility in Treasury prices ahead. In fact, a number of noted Treasury analysts seem to be in conflict on what they think will happen to Treasury prices under various upcoming scenarios.

Some widely followed analysts think that the lack of deal will provide a lift to Treasury prices from flight to quality angle, while others think that that outcome will hammer Treasuries because of credit rating concerns or the threat of a technical default. Similarly, other analysts think that a deal on the debt ceiling will take away a negative stigma from Treasuries and that a rally will be seen. Lastly some analysts think that a deal will cause a washout in Treasury prices, as the flight to quality flow toward US Treasuries will be reversed.

In short, even mainstream opinion is highly divided within the Treasury market and the market appears to be facing one of the most significant historical junctions ever and given the trend of events from Washington, Treasury prices could become the main focal point of the world. All things considered, the flow of scheduled data from the US might carry less significance, until the spotlight on Washington is extinguished.

← Older posts