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July 12th, 2012
Not surprisingly, US Treasuries this morning have remained within relatively close proximity to the recent highs. With broad based global slowing expectations in place again today, one might have expected a more positive early trade in US bonds and notes to start today but apparently seeing the prospect of an increase in Euro zone loan activity has temporarily dented flight to quality interest off the Euro zone situation. It is also possible that the expectation of a minor decline in US claims data later this morning is serving to keep US Treasuries off balance in the early action today. Not surprisingly, the Treasury market has seen demand for auction supply this week to be fairly consistent and the 30 Year auction later today is expected to go off without a hitch. An issue that might be limiting US Treasuries early today is the prospect of the US Budget Statement release later today. It is also possible that a minor improvement in certain portions of the Tankan Survey from Japan overnight has served to temper the pre-existing global slowing vibe that has clearly settled into the driver’s seat this week. In short, the Treasury markets might have been temporarily undermined by the lack of easing talk from the FOMC meeting minutes release yesterday afternoon, but that outcome has probably provided the bull camp with a more supportive environment going forward. With some players suggesting that Treasuries are a touch overbought technically, it is also possible that a modest decline in US claims might result in further long profit taking, but given the low level of economic expectations in the marketplace, it is unlikely that claims will usher in a wholesale washout in bond and note prices directly ahead. While there is a Fed speech later in the afternoon, the market might be temporarily deaf to fresh Fed speak in the wake of the disappointment from the FOMC notes yesterday. Another element that might be contributing to the minor weakness at the start of the Thursday US trade is news that the Euro zone managed to post a surprise rise in May Industrial Output figures! In short, anxiety toward the Euro zone debt situation has seemingly downshifted slightly, international data overnight was somewhat better than expected and US data later this morning might be slightly improved and therefore the bears might have some initial confidence. On the other hand, with the dollar higher and US equities soft to start, the trade shouldn’t be able to tout a noted improvement in economic psychology for very long.
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