Morning Interest Rate and Treasuries Report

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March 26th, 2012

Treasury prices have started out the new trading week by posting moderate losses this morning. Many traders feel that the main reason behind the sharp slide in Treasuries during the past two weeks was a combination of optimism toward the US economy, projections of earlier than expected US monetary tightening and ideas that flight to quality support from European debt problems was dissipating. However, global economic slowing fears have been revived by a series of softer than expected Chinese economic readings over the last two weeks as well as a slight reduction in US growth expectations. While a private survey of German economic sentiment managed to post a fifth straight month of improvement, European markets may be reflecting increasing fears toward Spain and Portugal that has helped to revive flight to quality interest in US Treasuries. In fact, some economists and market analysts have suggested that the benefit from the European Central Banks Long-Tern Refinancing Operation is starting to fade, which could have prompted some additional flight to quality interest in US Treasuries this morning. However, US Treasuries may have reacted negatively to the favorable German economic sentiment readings early today as prices have come under significant pressure this morning. In looking ahead to this morning’s activity, the Treasury market will receive several pieces of US economic data, with the Chicago Fed’s National Activity Index and a private survey of US Pending Home Sales likely to be the main focus of the markets. Treasury prices may be impacted from an early speech from Fed Regional President Plosser in Paris, and could also see a noted reaction from a speech from Fed Chairman Bernanke during the early morning action. Some traders feel that after receiving several hints that the era of low interest rates might be ending sooner than was originally projected last week, the market will be concentrating on all dialogue from Federal Reserve officials this week for any shift in policy.
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