Economic Numbers for 12/19/08 (all times eastern) NO ECONOMIC RELEASES. QUADRUPLE WITCHING DAY (Expiration of futures, options on futures, options on stocks
RISING TREASURY FUTURES SEEM TO HAVE NO END IN SIGHT. GOVERNMENT YIELD REIGNS SUPREME.
U.S. Treasuries continue to reign supreme as the asset class of safety and investment return. Year to date, investments in U.S. Treasuries have returned 14.4 %. This is their biggest return since 1995. Treasuries received initial support from new data confirming further deterioration of the U.S. economic landscape. Yields on the 30 yr Bond came with a point and a half of 2.50%, the lowest yield since the security began to trade in 1977. Weekly unemployment claims held near 26-year highs, while U.S. leading indicators and the Philadelphia Fed Survey both showed continued economic contraction, though slightly less than forecast.
The pressure from declining mortgage rates and the desire to drive them toward a target rate below 5.00% appeared to offer the greatest incentive to drive rates to these unprecedented lows. Traders and investors seem to be of the mind that aside from secure yield, the potential return on investment in the coming year may be to drive the cost of borrowing and debt so low that paying off debt and building equity in hard assets in itself becomes a viable investment plan. The market also received additional buying incentive as the debt rating outlooks of General Electric and GE Financial were downgraded to negative from stable by S&P. While the companies AAA rating remains intact, the fact that a bellwether company such as this finds its debt outlook in such a precarious position fueled additional demand for secure debt. It would seem that the hunt for yield in the coming months will be a precarious one. One investor’s opportunity may or may not be another’s threat. Time, perhaps the 3rd quarter of next year, may show whose insight was correct.
Technically, the market continues to scream OVERBOUGHT! OVERBOUGHT! OVERBOUGHT! Resistance appears to be limited to pullbacks that set up for the latest run up. In effect, 30-year futures have not had a significant correction since the 115.00 level based on technicals. Perhaps touching near the psychological 2.50% rate may trigger some profit taking back to the 139.16 level. However, there appears to be no significant level to determine a breakdown in the upward trend. Expect that pullback will remain limited through the rest of the trading year.
March 30 year Treasuries settled at 141.125, up 2 015/32nds, March 10 year futures settled at 128.00, up 14.5/32nds.
Rich Roscelli and Paul Brittain
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell because of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
