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June 20th, 2012
US Treasuries fell down to the lowest level since June 13th well in advance to the FOMC statement yesterday afternoon and then prices managed to recover into the actual Fed results. However, Treasury prices haven’t benefited significantly from renewed global slowing evidence overnight nor have then gained from generally weaker global equity market action. In fact, Chinese manufacturing forecasts registered the 8th straight monthly decline overnight and German data was equally discouraging. The bear camp will point to better than expected UK retail sales figures and strong demand for the Spanish debt auction supply as fodder for their case this morning. It is possible that US Treasuries are seeing some early pressure today from a Reuters poll of Primary dealers. The private poll of Dealers seems to have dredged up the prospect of QE3 from the US ahead. In fact, the Reuters poll also seemed to foster talk that the Fed will employ Mortgage Securities in any further easing programs. In short, the bears have somehow managed to spin what appears to be a deflationary slowing environment into their favor and that must be the result of central bank easing hopes remaining alive in the marketplace. With initially weaker Treasury price action, one might expect a recovery in US Treasury prices into the US scheduled report slate today, as the trade expected Claims and existing home sales to contract and for the leading indicators to be unchanged to weaker. Expectations for the Philly Fed Business outlook call for a slight improvement but that reading isn’t expected to denote positive momentum in that region. In retrospect, seeing hints of an operation twist with mortgage securities could be seen as a fresh angle and perhaps a more effective stimulus/easing tool. However, in the face of fresh 18 month lows in some crude oil pricing overnight, ongoing evidence of international slowing and in the face of generally soft US data expectations, the bear camp might be faced with a minor uphill battle directly ahead.
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