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The Treasury market might have been relieved by the view that the eventual US stimulus plan was constructed from a long list of political wishes that in effect can’t be executed quickly. In fact, some estimates predict that measures of the bill won’t actually be spent until after 2012. It is also likely that a favorable 3 year note auction yesterday added slightly to the upward bias. While the March bonds sit within relative proximity to the prior session’s highs, we are somewhat doubtful that the upward bias is going to extend today in the face of leg two of the US auctions. In fact, the market has typically shown less interest in the longer end of the curve and seeing $21 billion in 10 year notes auctioned today could be a very important test of the US ability to float copious amounts of debt ahead. While the market will probably discount the US Trade Balance readings this morning, those numbers might actually be supportive of Treasuries and to the US stock market, as the US trade deficit probably continues to narrow. However, we suspect that the Treasury market won’t be as pleased with the US Treasury Statement due out much later in the trading session, as that report is probably going to show evidence of sagging tax revenues and pre-existing run away spending from the US government.
As we suggested yesterday, we suspected that the March bonds were capable of a bounce to 128-00, but we now suspect that the market will be limited by the quasi double top at 128-15, unless the Treasury auction comes off solid today. The technicians will note that March bonds did manage to recoil sharply from the 100 day moving average of 125-04, which was also very close to Monday’s lows. While this week’s lows might be some form of solid support on the charts, we doubt that the Treasury market is poised to work consistently higher.
The bulls will probably hold out some hope of further gains today, into the mid day results of the Treasury auction, but if the market can’t rise off that window of opportunity, we suspect that control of the market will gradually shift back to the bear camp. In fact, as more supply is auctioned and the market shows less interest in the longer maturities that could serve to put the bear camp back in total control again.
In short, we give the bull camp a slight early edge this morning, but the slightest quiver into mid session, could quickly throw March Bonds right back down toward the 126-00 level and March Notes right back down toward the 122-10 level. Unless the world surprises with a huge appetite for the 10 Year Notes today, we have merely witnessed a brief rally within a bear market this week.
