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With March Bonds making another new low for the move in the face of weak data in the prior trading session, it is clear that the path of least resistance in prices remains down. In fact, we are not even sure if a rather sharp slide in the US 4th quarter GDP reading this morning will be worth even a modest bounce in Treasuries. In fact, after seeing some weak international economic readings overnight, US Treasuries were simply uninspired again and that could mean that even a clean sweep of weak US data this morning will have a limited impact on prices. We have to wonder if talk from Congress about a 4% mortgage offering from the government directly to quality borrowers hasn’t actually discouraged buyers of long term futures instruments, as a plan to offer low mortgage rates to the public would seem to play down the need to buy Treasuries to force down interest rates. It is really surprising that this market hasn’t seen the slightest bit of support from what was an extremely active flow of announced US layoffs this week and that would in turn seem to suggest that the fix is in for the bear camp in Treasuries. In fact, if the Treasury market is unable to turn high off a decline in GDP well in excess of 5% then it is clear that the standard or classical fundamental track in the market has been disrupted. From a purely technical perspective, one could see little in the way of solid support on the charts until the 125-00 level in March Bonds, with similar downside support in March Notes not seen until the 122-00 level. Perhaps the markets will find solid support after another downside adjustment in prices today, especially since a very long list of layoff announcements have been flowing for the last two weeks and that in turn could result in extremely weak data due out 1 week from today in the ultra critical monthly US payroll report. Given the pattern and posture of Treasury prices over the last two weeks, we aren’t even sure that a massive decline in US Non farm payroll data will serve to turn the trend back up in Treasury prices. In short, the fear of supply and or a simple demand for a higher yield from US Treasuries seems to leave the bias in prices pointing downward for now. As we suggested early this week, unless there is something very surprising like fresh outright buying of long dated Treasuries by the Fed, one has to assume that the path of least resistance is pointing downward. In the end, we get the feeling that the term structure of interest rates is reasserting itself and long rates are simply unwilling and perhaps unable to fall to extremely low levels like the short end of the market.
