ECONOMIC REPORTS FOR 12/30/2008: (ALL TIMES ARE EST) 10:00 AM U.S. CONSUMER CONFIDENCE (NOV READING 44.9)
TREASURIES CONTINUE TO SPIKE HIGHER ON FLIGHT TO QUALITY AFTERMATH OF GAZA CONFLICT
U.S. Treasuries continued Friday’s spike higher, particularly in the short end of the yield curve, as the conflict in the Gaza region continues to escalate. The move higher firmly positions Treasuries to offer their highest investment returns since the mid 1990’s.Traders and investors should remain aware that volume is likely to remain muted during this holiday period.
Israel has stated that it may consider employing ground forces in its next offense wave to stop the continuing rocket attacks from mobile Hamas militant troops. Iran is considered a major backer of Hamas and belief is sprouting that further escalation of the conflicts could possibly lead to spillover terrorist activities within regions known to be supporters of Israel. In addition, the conflict has caused an extensive percentage spike in the price of oil. While some analysts are viewing the regions struggles as a means for oil prices to find levels of support, the correction in energy prices is being viewed by many as a necessary re pricing of asset value. Any fundamental disruption to that rebalancing will in time reinvigorate market forces to resume that trend downward with perhaps even greater conviction, as the Gaza conflict again reminds the elements of energy demand the value in developing domestic and alternative sources of energy. This reawakening of concerns could bode well for future energy projects which are a supposed cornerstone of new stimulus packages destined to spring forth from the new administration, offering a possible “soft landing” scenario for Treasuries as revenues from these projects, if managed properly, could boost confidence in the actions of the government and result in longer than expected support for the lower yielding debt instruments.
Technically, the low volume, spiking volatility environment of the mid holiday season should continue to hold Treasuries in a relatively narrow channel as capital is likely to remain sidelined until after the New Year. Barring major oil disruptions causing price spikes, expect March 30 year futures to find resistance around the 141.12 level with strong near term support around the 140.02 level.
March 30 year futures settled at 140.285. March 10 year futures settled at 127.260
Rich Roscelli and Paul Brittain
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