Are we in for more "stimulating" times?
Fundamentals
Treasury futures posted modest gains ahead of this morning's release of non-farm payrolls, which are expected to show the US economy losing 540,000 jobs. A much larger than expected figure in the high 500,000's could send investors running into the waiting arms of the treasury market. Whether or not Bonds will be able to sustain rallies remains to be seen. Gold and corporate bonds have stolen some of the treasury market's thunder since the beginning of the year due to minuscule yields. If the US is going to rack-up debt at an increasing pace, fixed income investors will demand a higher rate of return. While there are some supportive factors for prices in the form of the Fed's treasury buying program and expectations that China will invest its massive foreign reserves in US debt, foreign investors may be put-off by the size of upcoming auctions. If the stimulus package in front of the Senate is passed, massive treasury refundings will persist for the foreseeable future, making it very difficult for the Fed to buy enough treasuries to keep yields in check. This could also result in the Fed having to print more money, which could lead to inflationary conditions, further lessening the appeal of Bonds. With this in mind, traders may be watching CSPAN for developments on the stimulus legislation just as intently as economic data.
Technicals
The March Bond chart remains bearish, after reversing from December highs. Prices have found support at the 50 percent retracement level of 126-05.5, an area with very little chart support. If the market is unable to hold ground at the 50 percent retracement mark, the next support level would be the 61.8 percent retracement at 122-15, which also coincides with heavier chart support. On the upside, the market may have to cross 132-00 in order to regain positive momentum.
Rob Kurzatkowski, Senior Commodity Analyst
