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December 13, 2011

Did you miss the October Futures for You column in Stocks & Commodities Mag on Currency Intervention?   Click here to view!   

Treasuries finally break higher...145ish?

Treasury bonds and notes spent much of the previous two weeks stuck in a rut.  However, a better than expected Treasury auction and a shaky stock market seem to have finally opened the door for the rally we have been looking for...but the question remains as to whether it will meet our expectations or fall flat of technical objectives.    

Bonds and notes traded in the red for much of the morning; we can credit the turn positive to a strong 10-year note auction.  The reopened $21 billion in notes drew a 2.02%!  Up until the auction, it appeared as though traders were hesitant to react to action in other markets.  For instance, overnight weakness in Treasuries was nearly entirely triggered by a sharp rally in equities but as stocks weakened bonds and notes failed to move higher.  It wasn't until after the even-risk of the auction was wiped away that trade was able to bid Treasuries into positive territory. 

As if an auction wasn't enough action, the Fed concluded its one day interest rate meeting today and announced the outcome this afternoon.  As expected, the Fed kept interest rates at current levels (near zero) and reminded traders "strains in global financial markets continue to pose significant downside risks to the economic outlook."

The chart is pointing toward a continuation into the 145 range (and maybe even 146) in the March 30-year bond and a little above 131 in the 10-year note, but for this to happen stocks might need to continue their tumble (and we aren't sure that will happen due to seasonal factors).  Therefore, aggressive traders might look to establish bullish trades from here but we feel like the best trade is in favor of the bears, but at better levels.  We realize it has been extremely boring in recent weeks, but if the market doesn't give traders anything to work with it is best to go elsewhere than to trade for entertainment rather than profit. 

In the meantime, today's rally in the long bond was about 2 full handles off of the low and this likely calls for some back and filling even if the ultimate direction will be higher.  Look for support near 142'03 and at 141'22; resistance lies near 143'03 and again near 144'26 (which is where we think the market is headed in the coming sessions).

In other markets....  

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