Bonds’ safe haven status in jeopardy?

We are not going to pass a clean debt limit,” Boehner said yesterday in an interview on ABC’s “This Week” program. “The votes are not in the House to pass a clean debt limit.” The $12 trillion of outstanding government debt is 23 times the $517 billion Lehman owed when it filed for bankruptcy on Sept. 15, 2008. Treasury Secretary Jacob J. Lew has said the government will have only $30 billion of cash left by Oct. 17 to meet its commitments. China is the largest holder of U.S. Treasuries, with $1.3 trillion in July, according to Treasury data. Japan follows with $1.1 trillion. Bank of America Corp. and Wells Fargo & Co. (WFC) both lost 1.1% in morning trading.

Equities: The DEC13 E-mini S&P 500 (CME:ESZ13) is down 9.25 points to 1675.50, after a weekend in which the government remained shut down and there was seemingly no further progress on the debt ceiling resolution.  The countdown for the debt ceiling deadline now stands at 10 days. 1679 remains our key level for this market, and it looks as though this level could be strong resistance. Overall, we believe it will be tough for the market to stage a sustained rally when the government is still shut down and we do not have clarity on whether or not the debt ceiling will be raised. We would not be surprised to see the market take a stab at levels below the 1664 level this week. If we do get good news politically, this idea could reverse and the market could rally with strength. The next key data we are all watching is the upcoming earnings announcements.

Bonds: The DEC13 U.S. 30-year bonds (CBOT:ZBZ13) are up 16 ticks to 133’15, still not yet able to hold a rally above this very key area. We believe the bonds are having trouble rallying above this level because of the debt ceiling debacle that is occurring now. The bonds are popular safe haven investments of choice when global economic growth becomes more uncertain. When the market is unsure that the U.S. government will be able to pay its debts, which include interest payments to bondholders, it make sense that the U.S. bond market might not now be looked at as necessarily the ultimate safe haven.

Currencies: The DEC13 Japanese Yen is continuing its recently rally, today trading up 49 ticks to 103.17. We believe it could be headed to at least the 104 level possibly much higher. We also look at the DEC13 Euro-Yen futures, and this pair is down 36 ticks to 131.65. We have the next key support level at 130 even. This level could potentially be hit, especially if the Yen rally keeps outpacing that of the Euro. The DEC13 Swiss Franc is up 26 ticks to 110.57, but has not been able to hold a rally above 1.11.  The DEC13 USD (NYBOT:DXZ13) is down 15 ticks to 80.07, just a hair above the key 80 level. We believe the USD might continue to head lower.

Commodities: DEC13 cocoa (NYBOT:CCZ13) continues its big rally of late, today trading up $89 to $2,702, hitting our key target/resistance level of $2700. Technically, the next potential upside target is $2,782. Energy markets are weak today, with NOV13 WTI crude oil (NYMEX:CLX13) down $.47 to $103.37, but actually trading all the way down this morning to $101.86. DEC13 gold (COMEX:GCZ13) is up $11 to $1321. We believe this asset might find some safe haven appeal this month due to the political circumstances in the USA.

About the Author
Anthony Lazzara

Anthony Lazzara, CEO of Newport Beach, Calif., commodities investment firm Lido Isle Advisors, spent 10 years as a trader and floor broker at the Chicago Board of Trade and Chicago Mercantile Exchange. Anthony has significant experience in the energy, fixed income, and equity futures markets. After being a long-time independent futures trader, Anthony saw a tremendous opportunity to educate investors on how to invest in professional traders. Anthony is now focused on his duty as CEO of Lido Isle Advisors.

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