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Clearly the threat of supply weighed on Treasury prices at the start of the new week, especially since the incoming President brought forth a pretty dire view on the overall condition of the US crisis. Apparently the logical conclusion to the resurgent banking problems in the UK and fears of pre-existing lingering financial sector problems in the US is for the market to expect even more shoring up from government and that in turn has undermined the US Treasury markets from the supply side angle. Just to add to the fear of borrowing, the ECB’s Trichet overnight felt the need to add that 2009 would be a year of “great economic slowdown” and that brings forth even more global debt fears as sustained slowing means lower government revenues and perhaps the need for even more stimulus.Ahead of the stock market open today, the markets will be presented with earnings at least one US airline and the MBA Mortgage Application survey and we suspect those developments will only serve to provide a minor measure of support to prices. In fact, with an NAHB Housing Market Index due out later in the trading session, one might expect to see conditions that would normally support Treasury prices but we just don’t get the sense that the market is in a position to benefit from typical fundamental news flow. In other words, we don’t get the sense that classic evidence of slowing is going to have a distinct influence on Treasury prices today. The fact that foreign investors are hesitating toward the long end of the Treasury market could be a serious inflection point for the Treasury market overall as that in turn suggest that foreign investors are actually questioning the creditworthiness of the US government again. Certainly the recent slide in Treasury prices could have been the result of interest for alternative investments, but with the US Dollar strong and equities extremely weak, the slide in US Treasury prices yesterday certainly had the feel of real concern for the US’s ability to repay its ever expanding commitments. In the short term, we expect the scheduled data to remain weak but we don’t think that the scheduled data today will be capable of turning the slightly bearish price tide around in longer dated Treasuries. However, given the importance of the housing numbers on Thursday morning, we would suggest that aggressive traders look to buy a further dip today for a bounce Thursday. Near term downside buying support in the March Bonds is seen at 132-15 and then again down at 132-06, with similar buying support in March Notes not seen until 125-11 and then again down at 125-01. In the near term, the threat of supply is set to control with a minor rise in equity prices in the early action today giving the bear camp an additional edge. At least into the scheduled numbers on Thursday morning, the bear camp looks to have a minor edge.
