Morning Interest Rate and Treasuries Report

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July 19th, 2012

Not surprisingly, the September bonds have forged a downside breakout on the charts overnight. In addition to signs of improvement in the US housing sector, the markets this morning have seeming discounted a spike up in Spanish debt yields overnight.

Other elements serving to pressure Treasury prices this morning are; mostly positive global equity market action, talk of Chinese easing this weekend and perhaps even strength in grain and energy prices. Even more surprising, is an increase of talk of the impending fiscal cliff from two past US Treasury Secretaries in interviews yesterday afternoon.

It is also possible that Treasury prices are seeing some pressure in anticipation of this morning’s US claims figures. Last week, initial claims data showed a noted decline and a breakout to a fresh multi year low and that in conjunction with better than expected housing starts figures, would seem to be a sign of ongoing improvement in macro economic sentiment.

In short, Treasuries appear to be under pressure because of ideas that the US economy is still holding together. Therefore, it is possible that initial and ongoing claims data could take on the importance of a monthly Non farm payroll report. Some economists think that the ongoing claims data this morning needs to confirm last week’s sharp drop in initial claims data, as ongoing claims are always on a one week lag with the initial claims data.

In addition to claims, Treasuries will also see a Philly Fed report and a leading indicators report, but those reports don’t look to carry as much weight as the claims data. Expectations for the Philly Fed call for a slight improvement over last month’s figures but the readings for that report are still expected to remain in a “contractionary” position. Expectations for the leaders, call for a minimal slide and therefore that report might not have a significant impact on prices.

In conclusion, the Treasury market failed to benefit from a rise in Spanish yields overnight and that suggests the trade continues to embrace macro economic “optimism”. It also seems as if the bear camp expects to see scheduled US data add to its case later this morning.
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*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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