Morning Interest Rate and Treasuries Report

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July 23th, 2012

US Treasury markets are on a sharply higher track during the Monday morning hours, with September 30-Year Bonds and 10-Year Notes into new contract highs. The European debt situation has become a greater concern over the weekend, with fresh headlines coming from Spain and Greece. With reports another region in Spain is close to requesting financial aid (after Valencia on Friday), and possibly six more regions at or near that level, it is no wonder that yields on 10-Year Spanish debt have soared to new Euro-era highs above 7.5%.

Comments from Greece’s Prime Minister over the weekend that the country was in the midst of a Great Depression only fueled the safety bid for US Treasuries. The debt situation in Greece has come back in the spotlight following the ECB’s decision last week to no longer accept Greek government debt as collateral, which would seem to only compound the problems in the region. This makes the upcoming meeting with the IMF and ECB another source of support for the US Treasury market, as leaders decide whether to increase funds from the Euro zone bailout package to help Greece.

Cash yields on the 10-Year Note fell to new record low of 1.413% during the early morning hours. Another force fueling the safety bid in US Treasuries this morning comes out of more slowing worries in China, after a Central Bank official warned that third quarter growth could come in weaker than expected. This leaves the focus on the Fed and whether fresh debt concerns in Europe and signs of more economic slowing could push the Bernanke Fed into more action. While last week’s testimony left QE3 as an option, it might take more definitive slowing ahead of next week’s FOMC meeting to push the Fed into action.

The market will get another look at second quarter US GDP later this week, which has notched lower recently and is expected to come in around 1.4%. Today’s US economic data presents the latest read on June Chicago Fed National Activity index and Fed Reserve governor Sarah Bloom Raskin speaks in Colorado. The Treasury market faces an active flow of supply this week, with a total $99.0 billion in 2, 5 and 7-Year Notes.

The outside market tone clearly has a risk-off vibe this morning, and that is expected to keep the US Treasury market well-bid in today’s session. It probably takes some form of Central Bank intervention to begin to reverse the fresh concern over Spain’s soaring borrowing costs and renewed market concern with Greece.

The Commitments of Traders reports as of July 17th for U.S. Treasury Bonds showed non-commercial traders were net long 24,975 contracts, a decrease of 12,680 for the week and the selling trend is a short-term negative force. September 30-Year bonds are nearly 2 full points higher since the report was conducted. For US Treasury 10-Year Notes, non-commercial traders were net short 21,548 contracts, an increase of 33,169, which represents a change from a net long to net short position and is sometimes seen as a negative force.
*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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