Morning Interest Rate and Treasuries Report

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July 3th, 2012

US Treasuries have fallen back from the temporarily quasi upside breakout yesterday with the rise to 150-02 in the September contract. However, news of fresh easing from China in the form of a RRR reduction combined with generally positive global equity market action overnight has reduced some of the safe haven demand for US Treasuries. It also seems if anticipation of easing prospects from the ECB on Thursday is serving to prop up economic sentiment even further. That might have prompted a measure of long profit taking in both Bonds and Notes. Despite a minor sentiment improvement overnight, fears of global slowing generally remain in place under the surface and those slowing views are probably providing some underpin for Treasury prices. In fact, with a 0.5% decline in European inflation readings overnight, one could suggest that fears of spiraling deflation aren’t far fetched and that upcoming slowing threats shouldn’t be fully discounted. However, Treasuries temporarily see the prospect of central bank action as an effective offset to near term slowing evidence. Other traders are suggesting that September Bond prices above the 150-00 level require definitive anxiety toward the Euro zone debt situation or data that points to the prospect of a return to entrenched global slowing. In addition to a series of chain store sales figures early this morning the US will also see a Factory orders report, auto sales figures and an ISM New York Business index. Expectations call for minor gains in auto sales and the Factory orders report and therefore it could take a weaker than expected set to data points to take the initial control away from the bear camp. With auto sales usually released around mid day and some markets scheduled for an early close ahead of the US holiday today, it is possible that the reaction to US auto sales might be the final burst of activity in bonds and notes today. In the end, the Chinese easing move seems to have tripped up the bulls control from Monday and with the trade anticipating fresh easing action from the ECB on Thursday, it is possible that the bear camp feels emboldened in their initial stance today. As suggested already, a pattern of global slowing remains in place despite central bank expectations and therefore the Treasury trade might single out weak data from the data flows today as the primary focal point. Unfortunately ramping up expectations for near term central bank easing are clearly in vogue and might be difficult to displace until the US Non farm payroll results are known on Friday morning.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.
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