Treasury Auction Announcement Looms
Fundamentals
T-Note futures are lower this morning, ahead of the US government's announcement regarding how much debt it plans to sell in the upcoming treasury auctions. The yield of the 10-Year note remains near the lowest levels of the year, unable to make a push lower. The employment data set to come out over the next three days will have a huge bearing on the near-term market direction. Last month's non-farm payrolls report hinted that the recovery in the job market may not be as strong as previously hoped. Friday's report may shed further light on whether last month's data was simply a bump in the road or a sign of tough times ahead. A surprise jump in new jobs may cause treasury yields to rise and Notes to fall, giving back some of the recent gains. Inflation would likely be a major concern among traders if the employment data indicates job growth, which could put downward pressure on the price of treasuries. Traders may also be inclined to enter into risk markets, such as equities and commodities, at the expense of Notes and Bonds.
Trading Ideas
The fundamentals have turned bearish to neutral for the 10-Year Note. On one hand, the economy still has significant challenges going forward, suggesting traders may maintain treasury positions as a safe haven. On the other hand, there seem to be new signs of life in the economy on a weekly basis, which could suggest that traders may lighten-up on their holding of treasuries. Technically, the chart suggests that the market may continue to trade sideways. For this reason, some traders may possibly wish to employ a neutral strategy, such as selling a strangle.
Technicals
The March 10-Year Note chart shows prices entering into an area of heavy chart congestion, which may limit the upside potential of the market. Prices have been gravitating toward the 117-116 level for the past six months, and it appears that the market may continue to do so for the foreseeable future unless there is a significant close above 120-00 or below 115-00. The oscillators are giving neutral readings, also suggesting sideways trading.
Rob Kurzatkowski, Senior Commodity Analyst
