ALARON US TREASURY FUTURES REPORT 05/26/09

ECONOMIC DATA 05/27/09: all times EST

  • 10:00 AM US EXISTING HOME SALES (4.67 M)
  • 10:35 AM EIA INVENTORY (CRUDE OIL, PRODUCTS)
  • 1:00 US 5 YEAR NOTE AUCTION ($35 B)

SUMMARY OF DATA 05/26/09

US CONSUMER CONFIDENCE (54.9VS 43),

US 2 YEAR NOTE AUCTION ($40 B BID TO COVER 2.94, YIELD 0.94%)

US TREASURIES FALL FROM EARLY GAINS AS SUPPLY CONCERNS, RALLY IN EQUITIES OVERSHADOW WELL RECEIVED AUCTION, GEOPOLITICAL TENSIONS.

US TREASURIES returned to negative territory after early gains due to increased geopolitical tension as North Korea increased the boldness of its weapons program in defiance of UN condemnation. Treasuries began to show signs of weakness after a report showing housing price declines have begun to steady. Declines, particularly in the long end of the yield curve, increased inversely with the gains in equities after a report showing US Consumer Confidence rose to 54.9, the largest gain since April 2003. The market traded in a slightly negative range near unchanged as traders awaited the results of the 1st of three US debt auctions this week.

The initial auction, $40 billion of US 2 year notes, turned out to be the most well received since 2006. Bid to Cover (the ratio of bids on debt received divided by the bids accepted) came in at a very strong 2.94 (the average bid to cover ratio for US 2 years has been around 2.40) while the yield went out at 0.94 %, two points lower than the expected rate. Foreign and non dealers were among some of the largest buyers, as appetites were heightened due to the hiatus in US debt auctions and the desire to put money to work in the short end of the yield curve so as not to tie up funds for an extended period where inflation could likely erode the relatively low yield on debt further out on the curve. Not surprisingly, the long end futures failed to garner support from this auction. The divergence between the short and long end of the yield curve (steepening) is increasing as supply concerns continue to make investors wary of holding longer term government debt at historically low yields. Compensation for riding through the expected maelstrom of inflation needs to increase, as perceived by many fundamental and technical analysts.

Technically, June 30 year futures appear to be on track to test a key support level at 117-300. A break of this level could set the market near an initial oversold position at 117-160. Strong resistance in the contract has set up at 120-050. Look for an initial pullback to top out at 119-160.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US M9 (US 30 YRS)

119-150

119-280

118-000

118-210

-21/32nds

TY M9 (US 10 YRS)

119-050

119-185

118-095

118-235

-14/32nds

Prepared by Rich Roscelli & Paul Brittain.

Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.