With a quasi double top on the charts at 119-08 and 119-09 forged over the two prior trading sessions, it would appear as if the disappointing US Payroll report is, for the most part, factored into Treasury prices. In fact at times on Monday it appeared as if slowing and deflationary type sentiment were attempting to climb back into the equation again and even with that track of thinking, the Treasury market was unable to improve on last week’s highs. In looking ahead, the flow of economic news today will be very thin and that in turn could leave the market attuned to the start of a series of Treasury auctions. With $35 billion in 3 year Treasury Notes to be auctioned today, $19 billion in 10 Year Notes on Wednesday and $11 billion in 30 Year bonds on Thursday, the issue of supply will be front and center again. However, recent auctions were a source of support to Treasury prices, with demand for the supply actually strong enough to lift and sustain futures prices. On the other hand, yields have declined somewhat since the favorable auctions were seen, but that is partially countervailed by ongoing weakness in US equity prices and a well attended TIPS auction on Monday. In short, the bulls would seem to maintain a very slight edge but we are not sure if the market will find enough information to actually forge a fresh upside breakout on the September Treasury Bond chart.
While the June 30th Commitment of Traders with Options report for U.S. Treasury Bonds showed the Non-commercial position to be net short 79,010 contracts, with the Non-reportable position also net short 27,341 contracts, and that made the “combined” spec and fund position net short 106,351 contracts as of early last week, we would suggest that reading is somewhat overstated. In fact, with the Treasury bond at times last week, reaching almost a full point above the level where the COT report was calculated, it is possible that the combined spec and fund positioning in bonds reached the lowest level since the mid point of 2008. In other words, one might suggest that the bearish outlook toward bonds has really moderated and with marginal additional gains on the charts ahead, it is possible that bearish sentiment toward Treasury bonds, could reach the lowest level since the ultra trying times of the bailout effort that initially turned investors so negative toward US Treasuries. Similarly the June 30th Commitment of Traders with Options report for US Treasury 10 Year Notes showed the Non-commercial position to be net short 102,609 contracts, with the Non-reportable position also net short 54,266 contracts, and that made the “combined” spec and fund position net short 156,875 contracts as of early last week.
Initial resistance is pegged at 118-30 and then again at 119-08 in September bonds and therefore it will take a decent auction for the 3 Year Notes today and possibly a resumption of selling in the US equity markets to push prices to the higher resistance zone. In September Notes, initial resistance today is pegged at 116-27, with more significant resistance seen up at 117-02.