Economic Numbers for 12/09/08: (all times eastern)
9:00 AM- BANK OF CANADA ANNOUNCEMENT
10:00 AM PENDING HOME SALES INDEX (86.5)
U.S. TREASURIES TRADE IN RELATIVELY QUIET SESSION. RALLIES STALL ON OVERSUPPLY CONCERNS, RALLY IN EQUITIES AFTER OBAMA PLEDGE FOR INFRASTRUCTURE PROGRAM.
U.S. Treasuries finished out a relatively quiet Monday sessions, playing second fiddle to a strong run up in equities and concerns regarding oversupply of longer yielding debt caused the U.S. dollar to fall significantly against the major foreign currencies. A $27 billion three-month bill auction went off at the lowest interest rates since 1929-another sign that capital preservation remains the key focus of many traders & investors, particularly in what is being considered a deflationary environment, where falling yields do not pose as much concern to perceptions of real rates of return.
Treasuries were also capped from further gains by a strong rally in equities as financials, infrastructures, energy stocks all rallied on US dollar weakness & an announcement by President Elect Obama that one of the goals of his administration would be to boost investment in infrastructure. Concrete statements (excuse the pun) such as these have often been pressured Treasury debt instruments, particularly on the longer end of the curve, on the realization that funding for the revitalization of the global economy will have to be backed by extensive commitments of long term capital for decades to come. As of right now, the estimated total commitment of resources to the financial crisis looms OVER SEVEN TRILLION DOLLARS and is expected to continue growing. With that kind of “Perfect Storm” looming ahead, bonds should be expected to take a breather. Treasuries may also be slowing gains in order to pause and review if the market is closing in on the sweet spot, that level of low yield on Treasuries that should effectively result in mortgage rates being forced down to a level that would encourage the maximum amount of refinancing and new lending.
Technically, 30-year bond futures appear to be consolidating in a channel that is demonstrating some upside weakness, as a series of lower highs today suggest that the market may be getting ready to initiate another attempt at a pull back toward the 132.06 level. This level represents an initial support level that could set up the market for another momentum run to test the 134.06 level.
March Bond Futures settled at 133-15, up 1.5/32nds.Ten-year futures at 122-24.5, down 9/32nds.
Prepared by Rich Roscelli & Paul Brittain
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