Morning Interest Rate and Treasuries Report

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February 23rd, 2012


US Treasury markets traded lower during early morning hours, pressured by a better than expected private survey of German Business Sentiment and ahead of today’s auction of 7-Year Notes. This morning’s reading on German Business Sentiment came in much better than expected, which helped the German Bund reverse early gains and fall into negative territory. Some traders feel that the Treasury markets this morning are likely to find support from fears of higher energy prices as new nine-month highs in US crude oil above $106 a barrel have taken on greater interest for the bond market, fueling concerns that higher prices could weigh on a fragile economic recovery. While yesterday’s US 5-Year note auction was met with solid demand and yields matching market expectations of 0.90%, today’s $29 billion auction of 7-Year Notes could lead to additional pressure on the Treasury market this morning. The US Federal Reserve will conduct two sales of shorter dated Treasuries during the next two sessions as part of their “Operation Twist” program, and that could be another factor putting downside pressure on Treasury markets. U.S. Treasury markets face an active flow of economic data this morning, including the latest reading on initial jobless claims that are widely expected to show a modest rebound from last week’s decline to a four-year low. In addition, the market will also receive another look at the US housing market with a private survey of Home Prices that is expected to show a slight increase for the month. Many traders could be looking for these numbers to confirm yesterday’s somewhat positive Existing Home Sales data that climbed to a new 1.5 month high, along with a decline in supply towards a 7-year low. The data flow wraps up with February Kansas City manufacturing activity, which is expected to climb toward its best level since July 2011. The tone of outside market factors this morning, with gains in global equity markets and a rally in several other “risk” assets, may offer another negative factor for US Treasuries prices at the start of this morning’s trading.



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