Morning Interest Rate and Treasuries Report

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July 20th, 2012

With global equity markets weaker overnight, somewhat renewed Spanish debt concerns and slow US data results from yesterday, the bull camp has the edge. While Treasuries might have garnered some support from news of a contraction in German inflation readings overnight, weak demand for a bond auction in Spain and seemingly unsustainable borrowing rates for Spain has probably been the primary force behind rekindled flight to quality buying. However, another important pillar of the bull case today is the realization that US scheduled data yesterday turned off soft again and that has probably rekindled some classic fundamental buying of bonds and notes.

With a number of markets seeing calls for additional easing from the Fed and some in the trade anticipating another easing move from the Chinese over the weekend, the spin from the central bank front would also seem to favor the bulls. Unfortunately for the bull camp, the US economic report slate today is relatively thin, with some 3rd tier hybrid regional and state employment readings. Traders should look to the European market closes later this morning for direction, as the trade is already focused on the unsustainable borrowing costs facing Spain again and it is difficult to rule out even more Euro zone slowing concerns in the wake of a 0.4% decline in German June PPI readings overnight. In fact, warnings that additional European slowing will more than likely prompt further sharp gains in the Yen from the BOJ Governor Shirakawa overnight. It would seem to suggest that flight to quality instruments like Treasuries are set to remain in vogue.

In the absence of top tier US scheduled data today, action in the equity markets are likely to be very important to the Treasury trade. Some will suggest that the European equity market action into their close later this morning could set the tone in Treasuries for the rest of the Friday US trading session. However, in the event that Treasury prices forge significant early gains, it is possible that weekend Chinese easing hopes could prompt some profit taking just ahead of the US close.
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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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