TREASURIES PUT IN A CHOPY SESSION, END MIXED ON RISING DEFICIT, 10-YEAR TIPS AUCTION RESULTS
ECONOMIC DATA 01/07/2009 (ALL TIMES EST):8:15 AM ADP EMPLOYMENT REPORT10:35 AM EIA CRUDE OIL INVENTORY REPORT (+900,000 CRUDE)
U.S. Treasuries ended Tuesday’s session mixed, with the gap between the 30-year bond and 5 and 10 year notes narrowing for a second session as the markets continue to reevaluate the wisdom of long term commitment to government fixed income that is trading at near historically low yields with potential supply of debt reaching unprecedented levels. Treasuries were little changed after President-elect Barack Obama said the U.S. would soon face budget deficits near $1 trillion, raising concern that a record level of securities will be needed to finance the shortfalls.
The Treasury’s sale of $8 billion in inflation-indexed notes at auction today drew the most demand in nine years, suggesting investors are concerned that inflation may accelerate along with government spending. The support garnered by the record sale of the 10 year TIPS allowed for a strong divergence between U.S. 10 Year futures, which held onto nearly all of its post auctions gains, and 30 year futures, which have retraced dramatically in the wake of low yields, lessen security concerns, and perceptions that loan rates which are tied to 30 year futures are not going to see the pass through savings that those low yields should have brought to consumer and corporate borrowers. Treasuries in the after market did stage a strong comeback after Alcoa announced that it would be cutting production and nearly 13,000 jobs in the falling of falling resource prices. The report brought renewed negative sentiment regarding the outlook for earnings reports scheduled to begin next week.
Technically, 30 years have settled into a near term channel with strong, near term resistance near the 134.02 level. The recent reversal into a correcting downward trend remains in place, with a target area near the 128.03 level.
March 30 year futures settled at 13222.0, down 10.5/32nds. March 10 year notes settled at 124.115, up 6/32nds.
Rich Roscelli and Paul Brittain
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