posted testerday by carley garner
Posted by: carleygarner
On: 09-06-2009 10:06 PM
June 9th, 2009
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Quiet trade despite auction
In the past I have always viewed the Treasury markets as being somewhat rational relative to the other financial markets. However, in the last 9 to 12 months I have retracted that opinion. As it turns out, Treasury traders are just as prone to panic as any other; we saw it on the way up in late 2008 and again on the way down in the most recent months. Accordingly, I have become increasingly suspect in regards to the directionless trade witnessed in the previous few sessions. With near chaos in the currency and commodity markets I can't help but feel the tension in bond trade building.
The 3-year note auction went better than expected but the market's reaction was highly reserved. Contracts representing the short end of the curve caught a bit of a bid but the long bond gave up the day's gains on the news. Apparently the news wasn't good enough. Most traders looked at today's auction as a speed bump in the road to get to the reopened 10's and 30's set to be issued tomorrow and the next day. Volume has tapered in recent days but could pick up again in light of the upcoming auctions.
Looking at Treasuries on a long-term basis, we are approaching a seasonal low and massive numbers of short traders will eventually fuel a short covering rally that could be surprisingly sharp. However, the trend is clearly down and the market has yet to find a catalyst to squeeze the bears enough to deter a sell on rallies mentality. This makes for a tough climate to be a directional trader.
We are looking for support in the 30-year bond near 112'07 then again at 111'20. The 10-year note should hold above 112'18 even in the case of an auction gone bad
