Bond report for March 27: Comeback

ECONOMIC DATA 03/27/2009: all times EST

8:30 AM PERSONAL INCOME & OUTLAYS (-0.2%)

9:55 AM UNI OF MICH CONSUMER SENTIMENT (56.7)

ECONOMIC DATA 03/26/09 US 4TH QUARTER GDP (-6.3% VS. -6.6%) US WEEKLY UNEMPLOYMENT CLAIMS (NEW CLAIMS (652 K VS. 650K). US 7 YEAR NOTE AUCTION ($24 BILLION BID TO COVER 2.52, YIELD 2.384)

U.S. TREASURIES RALLY BACK TO HIGH END OF RANGE ON WELL RECEIVED SEVEN-YEAR NOTE AUCTION.

U.S. Treasury futures seesawed between the recent ranges defined by last week’s FOMC post meeting rally. The markets ended the session posting strong gains after a better than expected showing for the U.S. seven-year note auction. The term “less is more” appeared to be the key to success for this auction. Despite its record $24 billion offer, the auction was significantly less than the $34 billion offered in Wednesday’s five-year note auction, which triggered a massive sell-off in equities on concerns regarding the U.S. government’s ability to fund the unprecedented levels of stimulus perceived needed to jump start the economy. Today’s results demonstrated the trickle down influence of these auctions upon related financial markets, such as equities, currencies, and commodities.

Yield on the auction came in at a slightly better than expected 2.384% and the bid to cover ratio posted at 2.52. This bid to cover was significantly above yesterdays 2.01 for the five-year auction. The auction results allowed for a significant boost in prices along the entire yield curve and reignited a rally in equity and commodity prices that appeared to be in danger of stalling out. The report allowed the major equity markets to push and hold above key near term resistance levels (820.00 in S&P, 7800 in Dow). Treasuries will be likely seeking direction from two influences in the near term- the next Fed purchase of Treasury Debt (amount and aggressiveness will be key factors) and the results of the upcoming G20 meeting where confrontation with China could produce insight into the support that the largest holders of foreign debt have for the U.S. economic bailout strategy.

Technically, June 30-year bonds continue within the range set last Wednesday between 126.280 and 129.170. Down side support if a breakout occurs remains at 125.120, while upside resistance pulls in slightly at 130.20.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US M9 (US 30 YRS)

127.140

128.255

126.285

126.285

+26/32nds

TY M9 (US 10 YRS)

123.015

123.250

122.240

123.210

+15.5/32nds

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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