U.S. Treasuries continued to trade mixed to slightly lower on Wednesday, even after a relatively strong reception for $ 20 billion of US 10 year notes at the second of three Treasury auctions this week. A total of $70 billion will be coming to market this week.
Early pressure came on Treasuries as the major equity indices move back toward their 2009 highs, breaking through some near term resistance levels. In addition, the US dollar continued to lose ground against most of the major world currencies, eroding potential gains by foreign holders of US debt. Overall the government debt markets were calm today. Global government debt did receive some support from a statement by Moody’s that the rating service perceived it unlikely that US and UK sovereign debt would lose their top credit ratings. In addition, reports that speculative default rates have risen nearly 300% year over year continues to offer some defense against the crushing global supply of US debt and the concern that foreign holders may seek to dump underperforming yields based on increases in risk tolerance globally and the continued erosion of US dollar value under its own massive weight of supply.
The strong reception for US sovereign debt even at the long end of the yield curve does suggest that traders and portfolio managers are developing strategies that will deal with the perceived “speed bumps” that have been forecast for the global economic recovery. Look for the forces described above to have varying degrees of influence upon the sentiment regarding the real value of Treasuries. This could maintain the range within recent price parameters through October of year at the very least, with some volatility in prices leading into the end of December, when price support usually kicks in as a result of increased purchases by portfolio managers.
Technically, December 30 Year Treasuries broke through initial support at 118-07, trading down to a session low of 117-18. The move did set some precedent for a test of low end of range at 117-08. RSI on a daily and 60 minute indicator remain relatively neutral, with a slight bias toward the market having further downward momentum available. Market appears likely to make another attempt to test Wednesday’s low of 117-17. If this level breaks, should signal setup to target 117-03, with next target below at 116-21. Upward resistance sets up at 119-20.
Prepared by Rich Roscelli & Paul Brittain.
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