Morning Interest Rate and Treasuries Report

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February 17th, 2012


US Treasuries traded lower during the early morning hours, with many traders feeling that recent safe-haven support has been diminished following the recent string of positively-received US economic data and from hopes that Greece might be closer to receiving a second bailout. March 30-Year bonds declined to a new 3-session low while March 10-Year Notes fell to a new 5-day low during yesterday’s trading, following rather upbeat US economic data that showed evidence that the a US recovery was gaining momentum. The macroeconomic tone reflected a decisive “risk-on” vibe after am unexpected weekly decline in initial jobless claims, which fell to their lowest level in 4 years. The improving US economic data and optimistic attitude surrounding the Greek debt bailout provided traders with the feel of a higher interest rate environment ahead. That outlook appears to be somewhat intact again this morning, with gains in European equity markets overnight and slight weakness in US Treasuries. With the Greek situation on the mend, it might take disappointing US economic data flows this morning to reinvigorate the flight-to-safety bid in the Treasury market. This morning’s flow of US economic data includes the January consumer price index, which is expected to show another monthly gain. Yesterday’s read on January producer prices came in slightly under forecasts with modest declines in food and energy costs, suggesting that inflation pressures are under control. Meanwhile, the breakeven rate between US 10-Year Note yields and TIPS securities indicates that the market currently has inflation anchored in at an annualized rate of around 2.60%. In comparison, these rates were running around 3.25% last year at this time. The market will also focus on a private survey of January leading indicators that are expected to show a slight gain on the month and to generally be in agreement with US economic growth forecasts of around 2.5%. It is also possible that the U.S. Treasury market is going through an adjustment ahead of next week’s auction calendar of 2-Year, 5-Year, and 7-Year Notes totaling $99 billion.



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