Morning Interest Rate and Treasuries Report

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March 27th, 2012

Treasury prices have kept within a relatively tight trading range this morning, as some traders feel the market may not have been strengthened dramatically by ideas that the Federal Reserve may continue with an accommodative monetary stance. Global equity markets may have taken this week’s Fed dialogue as a sign that more bond buying might be undertaken as a way to provide support to the US economy, but US Treasuries generally remained weak throughout Monday’s trading action despite the comments and dialogue from the Fed. Apparently some potential buyers of US Treasuries may have intimidated by the prospect of upcoming Treasury supply, while other traders could have been discouraged by the level of global macro economic optimism that resulted from an ongoing supportive stance from the Fed. Suggestions from Fed officials that they were unlikely to provide additional stimulus unless the US labor market showed signs of weakening may have provided some measure of residual support to Treasury prices yesterday morning, but the major overriding force in the marketplace continues to be ideas that the US economy continues to be in a recovery mode. Another element that might have undermined Treasury prices over the last 24 hours were reports that Germany might be poised to increase the financial backstop for handling ongoing problems resulting from the Euro zone debt crisis, as that would help to reduce safe haven interest in US Treasury instruments. In looking ahead to today’s session, US Treasuries will see a rather active US economic schedule, with the market generally expecting two of the three economic numbers this morning to show a decline from their previous readings. However, the market may have already factored in another decline in a private survey of US home prices this morning while the outlook for a private survey of US consumer confidence is generally calling for very little change in either direction. Many traders are expecting to see some market reaction to Treasury Secretary Geithner’s comments to Congress later this morning, as well as from speeches by Fed Regional Presidents Dudley, Fisher and Rosengren. The market might also see some impact from a 2 year note sale, but given the recent rise in longer-term yields and the fact that the supply today is for a shorter term security, it is possible that demand for this portion of US supply this week could be solid.

 
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