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The Treasury market managed another new high for the move in the prior trading session and has managed to hold all of those gains into the early Wednesday trade. Apparently strong demand for the 5 Year Note auction combined with a mostly slack sweep of US economic readings for a move to the highest level since October 9th. With a fresh new low in the Dollar and a fresh new record in the Gold market overnight there could be some countervailing pull on the Treasuries against their recent upward bias. However, we get the sense that the markets are mostly anticipating more slack economic readings ahead and a somewhat supportive 7 Year Note auction later this morning. While the 5 Year note auction went off much better than expectations, the trade doesn’t expect as much demand for the ($32 Billion) 7 Year auction later today.
Not surprisingly the Treasury market managed to discount a bit of potentially undermining news from the FOMC meeting minutes release yesterday afternoon, as it seemed as if the Fed was divided on whether it should employ asset sales efforts in the unwinding of its historical stimulus efforts. However, since the Fed seemed to be debating the style of unwinding, instead of discussing the timing of a start to the unwinding process, the Treasury market was at least initially unmoved by the “asset sale” discussion. Therefore a slightly upward track looks to remain in place into another rather active US economic report slate today.
With New Home sales, personal Spending/Income and Durable goods due out today, there will be no shortage of economic news to guide the market to more new highs for the move. While new home sales, Personal Spending and claims might weigh on the market, we suspect that Personal Income and durable goods will serve to countervail any liquidative tilt. In fact, without very large declines in initial and ongoing claims, we doubt that the bull camp will lose control over the trend in Treasury prices. While we don’t expect the market to forge a strong upward pulse, Treasuries might not even be undermined in the event that US equity prices forge a pre-holiday rally. However, with the recent slide in consumer confidence/sentiment, it is doubtful that the US equity market will be able to forge a pre-holiday rally.
Close-in support in December Bonds is seen at 121-10, with similar support seen at 120-00 in December Notes. With the US Treasuries undaunted in the face of a fresh new low in the US Dollar and the market seemingly poised to discount good economic readings and embrace slack readings, we see little in the way of resistance in December bonds until the 122-02 level. Near term upside targeting in the December notes is seen up at 120-15. To alter the uptrend bias, would probably require a 180 degree shift in a several US numbers, or some kind of official hint on when the Fed might be poised to begin unwinding its ultra loose policies. Given the pace of recent numbers, we still have to think that the Fed remains more concerned about slowing growth than it is of impending inflationary threats.
