Morning Interest Rate and Treasuries Report

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August 17th, 2012

Treasury prices have held above the prior session’s low during overnight trading but remain on course for a fairly large weekly loss. In addition to yesterday’s comments by German Chancellor Merkel that many traders felt helped to reduce flight to quality concerns towards the Euro zone, US Treasuries have also seen mostly positive global equity market action overnight. Some economist viewed yesterday’s US data to be countervailing, as potentially supportive news from the Initial Jobless Claims and Housing Starts numbers was offset by improvements in the Ongoing Jobless Claims and Housing Permits numbers.

The most significant market development for Treasuries during the last 24 hours may have been the comments from German Chancellor Merkel, however, who suggested that Germany will do what ever it takes to see the Euro survive. Other traders have also suggested that the increasing prospects of Chinese economic stimulus and/or easing measures throughout this week will be a residual negative for US Treasuries, as potential Chinese central bank action could reduce the chances of fresh quantitative easing measures from the Federal Reserve.

US economic data today includes a private survey of US consumer sentiment which generally expected to come in around unchanged levels, while a private survey of US Leading Indicators is generally expected to post a modest rise. Today’s US economic numbers may not prove to be overly significant but some traders feel that seeing additional positive data, significant gains in global equities and further upbeat dialogue from EU officials later today could lead to additional pressure on Treasuries at week’s end.

With September bonds currently sitting almost 9 full points below their July highs, many in the market feel that the overall macro economic view has improved significantly and that Treasuries may need to see positive economic readings just to keep prices down near their recent lows. However, if the European trading week ends with stock markets in that region in positive territory and today’s US data generally seen as positive, Treasuries are likely to remain under pressure through the rest of today’s 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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