Bond report for Dec. 26

TREASURIES REMAIN RANGEBOUND AFTER WORSE THAN EXPECTED RETAIL SALES & JOBLESS CLAIMS.

U.S. Treasuries put in a relatively lackluster performance ahead of the Christmas holiday as the markets seem to be settling into a observation mode based upon light volume, dropping volatility, and the consensus that the extraordinary levels of capital committed to the US debt markets are likely to remain in place until after the New Year and the takeover by the new Presidential administration. It will then be for the markets to interpret the length and depth of “political capital” which this administration will be allowed to access before the cravings for realistic returns wanes on that commitment and calls for a shift of capital back toward higher yielding investment vehicles, such as quality dividends & corporate debt. In spite of this seemingly natural progression, the markets will keep in focus that the economic & investment landscape will maintain an underlying foundation of government influence that will not fade away anytime soon.

Returning to today’s influences on Treasuries, the markets continued to maintain a bid for security & guaranteed yield that was based on economic data that continues to offer up 2008 as one of the most dramatic economic transition periods in recent history. The employment picture continues to deteriorate at a faster than expected pace as new unemployment claims increased by a greater than expected 586,000. The market appears to be bracing for additional downward numbers as the retail sector is expected to undergo a significant contraction through job cuts and fewer store openings/store closings in early 2009. Personal income also dropped greater than expected. This element may begin to stabilize as early as the middle of next year, as the drop in commodity prices may boost some elements of income. One surprising bit of positive data was the US durable goods report which showed a less than expected decline. This data was taken with somewhat of a grain of salt, as many manufacturing plants that are idling production in the New Year may be receiving larger orders to support inventories for the future. Overall, the data picture maintains the strong bid for Treasuries.

Technically, US 30 year futures remain positive, but continue to make a series of lower highs, signifying a narrowing range channel will continue as volatility remains muted. The shortened session in Treasuries did not allow for continued downward movement to fill in the gap left from the 139.16 level.

March 30 year futures settled at 140.16, down 17/32nds. March 10 year futures settled at 129.265, down 17.5/32nds.

Prepared by Rich Roscelli & 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.

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