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Treasury prices have managed a bounce off the prior session’s lows but with the March bonds remaining below the 118-00 level, it would seem like a bearish tone generally remains in place into the new trading week. With international credit risks seemingly on the wane, in the wake of a Dubai bailout announcement overnight, and equity prices also showing initial strength today, the bear camp certainly has more news in its court than the bull camp. In fact, with the US economic report slate empty today, it might be difficult for the trade to revive macro economic concerns again and in turn lift Treasury prices markedly. However, Treasury prices were able to throw off the early bout of selling, on a bit of bargain hunting buying interest that seemed to be sparked by slightly higher yields.
While the December 8th Commitment of Traders with Options report for U.S. Treasury Bonds showed the Non-commercial position to be net short 82,283 contracts, with the Non-reportable position net long 12,614 contracts, that made the “combined” spec and fund position net short 69,669 contracts as of early last week but that positioning is probably understated due to the slide in prices since that report was measured. The 10 Year Notes showed a “combined” spec and fund position that was net short 20,579 contracts and we assume that positioning is also moderately understated. In looking ahead to the week, the market will be presented with a series of inflation reports early on and then an FOMC meeting statement later on in the week.
In the event that Treasury prices are sitting near a downside breakout point on the charts, into the FOMC meeting statement later this week, we would suggest that the trade will have some form of policy statement change factored into prices. At least in the near term, March Bonds have somewhat solid support down at 117-04, with little in the way of resistance seen until the 118-16. Critical support in March Notes is seen at 117-13 today, with little in the way of resistance seen until the 118-05 level. With President Obama meeting US Bank executives today in what is thought to be an effort to spark increased lending activity, it is possible that US Banks will be less inclined to hold money in Treasuries and that in conjunction with residual gains in equity prices ahead, would seem to suggest that both bond and note prices are poised to make lower lows in the weeks ahead.
In fact, without a resurfacing of international credit concerns, the bull camp might find it extremely difficult to consistently control the market. Interestingly enough, longer term up trend channel support is seen in the March bonds just below the market at 117-06 today, with similar up trend channel support in March Notes seen pretty close to the market at 117-15.
