Morning Interest Rate and Treasuries Report

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June 27th, 2012

In looking back to the price action early this week it appears prices were coiling in advance of a critical pivot point directly ahead. While the EU summit is a long anticipated event and the coming will be the 20th attempt to resolve the persistent EU debt crisis, the trade still acknowledges the prospect of major developments from that meeting are slim. However, with escalating Spanish borrowing costs once again putting a lit fuse on the EU debt bomb, one might expect financial markets to flare into or through the EU summit window. In the early action today, the bear camp might be expected to have an edge in Treasuries as expectations for US Durable Goods and Pending home sales are calling for modest improvements from the data front. It is possible that Chicago Fed data could countervail the positive seen from other data sources this morning. However, a positive reading from Chicago could give the bear camp some temporary added resolve. In fact, after some better than expected US housing news earlier this week, it is possible that pending home sales could even come in better than most expectations. Therefore, the bear camp probably expects to get a little pressure on prices in the face of US data. That downward track might be diffused by yesterday’s German comments. With Merkel suggesting yesterday that there would not be an EU wide bond offering while she was alive clearly seems to take any effort to compromise off the table. Merkel has continued her rants this morning with suggestions that there is no quick solution to the crisis and that the EU must attack the cycle of debt and rule breaking. While Durable goods might be expected to exert some pressure on Treasury prices, the real reaction in today probably comes from the home sales reading. Some think it will produce an upside surprise. Later in the session, the market will see a speech from the Fed’s Evans followed by a 5 Year note auction. With the markets clearly fearing global slowing and another layer of Euro angst, it is possible that would-be buyers will be poised to snatch up fresh positions on early morning weakness. Other flight to quality buyers might wait until the late afternoon action before jumping into long plays in advance of the EU summit kick off on Thursday morning.
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