Morning Interest Rate and Treasuries Report

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July 31th, 2012

The Treasury markets are showing some minor weakness to start today, as flight to quality issues may not be as dominant as they were at the start of this week’s trading. Some traders feel that global sentiment is being cushioned by the proximity to the Federal Reserve’s FOMC post-meeting statement on Wednesday, as weaker European employment readings this morning could easily have rekindled fears toward the Euro zone again. While the 2-day FOMC meeting starts today, the focus of the Treasury market early in the session should shift back towards a very active schedule of US economic reports. Personal Income and Consumption may set the tone for this morning’s session, as market expectations are calling for minimal gains. However, in the event that Personal Income and Consumption comes in weaker than expected, the market might see a distinct increase in speculation of potential Fed easing for Wednesday afternoon. Some noted Treasury market analysts have suggested the odds of fresh movement from the Fed have risen in the wake of comments from a favored Fed “insider” who suggested the Fed has more than enough justification to act, while other analysts feel that the Fed will simply get enough evidence of additional slowing from US data early this week to justify any fresh action. Some traders are concerned that an improvement with a private home price survey this morning could complicate the prospect of fresh action from the Fed, as seeing a leveling out in the US housing sector could reduce the risk of the Fed not acting. On the other hand, weakening Euro zone employment data this morning and aggressive dialogue from ECB officials at the end of last week would seem to increase the drag on the US economy from overseas problems. Other traders think that Bonds and notes will get a lift from Consumer Confidence readings later this morning which many think were adversely impacted by the July 19th through July 25th slump in US equity prices. Another element that might be set to provide support to Treasury prices this morning are the expectations of softer Chinese data coming into Wednesday morning’s US session.
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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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