Bond & equity report for Nov. 10

SUMMARY OF UPCOMING DATA 11/10/09

  • 1:00 PM US 10 YEAR NOTE AUCTION ($25B)

DATA RESULTS 11/09/09

  • U.S. THREE-YEAR NOTE AUCTION ($40B) BID TO COVER 3.33, YIELD AWARDED 1.404%

U.S. DEBT REVIEW AND OUTLOOK

U.S. TREASURIES began the week of trading in a subdued session. Even a record bid to cover result for the $40 billion of us three-year notes failed to spur any momentous increases in trading volume. The focus of most trading remained on equities and the U.S. dollar.

Today’s US three-year note auction posted a record bid to cover of 3.33. Bid to cover is the ratio of bids received for U.S. Treasuries divided by the number of bids accepted. The high yield of 1.404% was significantly lower than most traders were expecting. The Treasury complex bounced to its highs of the session after the auction results were announced, then retreated back to their previous levels as equities continued their global stimulus fueled rally. Traders are likely looking ahead to the next two auctions of Treasury debt that is further out on the yield curve. Questions may surface regarding how supportive indirect bidders (the drivers of today’s results) will be with regards to committing funds on longer yielding debt. While doubts exist, standard end of year portfolio rebalancing may offer support which at the very least will keep Treasuries range bound for the remainder of the year.

Technically, the December 30-year contract appears to be forming a possible head and shoulders pattern forming back on Oct. 26. This setup could result in downward momentum pushing the contract to test 117-13. Downside support sets up at 117-01. Resistance for the contract sets up at 119-12.

U.S. EQUITY REVIEW AND OUTLOOK

U.S. EQUITIES rose to their highest close of 2009, after the G20 nations affirmed continued flows of stimulus and lower interest rates would remain the focus of global fiscal policy. The Dow Jones index closed at a 13-month high. Investors began the week with the ongoing risk tolerant strategy of buying equities and commodities and selling the U.S. dollar, which fell to a 15-month low.

Overseas data helped to fuel global recovery sentiment. China posted a 77% increase in October car sales from last year and Germany reported stronger gains in industrial production and export sales, in spite of the strengthening Euro.

The main driver of global equity gains was the reassurance that global fiscal policy will remain one of continued stimulus and capital flows from central banks. Buyers decided to leap to the head of the recovery curve, placing concerns regarding employment on the backburner, as evident by stocks ability to hold up after Friday’s worst than expected readings on payrolls and unemployment.

Gains in equities were the broadest based in recent memory, with no particular sector posting lagging returns.

Energies and Commodities gained, supported by the weaker U.S. dollar and the supportive data from Asia and the Euro zone. In addition, stirrings in the M&A sector also supported the recovery outlook in today’s session.

Technically, December S&P 500 futures broke through several levels of resistance and appear poised to retest the upside breakout level of 1103.00. A hold above this level could target 1112.00 on the upside. If volatility is shown to remain in check, retracement of Monday’s run up should find support at 1079.00, with 1061.00 setting up as a strong support level.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US Z9 (US 30 YRS)

118-12

118-28

118-01

118-16

+2/32nds

SP Z9 (S&P 500)

1074.50

1092.00

1074.00

1091.70

+25.50

Prepared by Rich Roscelli & Paul Brittain.

PLEASE EMAIL QUESTIONS OR COMMENTS TO RICH@BINVSTGRP.COM

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. Commodity Trading School, its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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