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Treasury Bonds and Notes Surge on Good Auction Results

Wed, Nov 25 2009, 00:58 GMT
by James Hyerczyk

ForexHound.com

December Treasury Bonds and Treasury Notes surged in the afternoon following better than expected results from today’s $42 billion 5-Year Treasury Note auction. The decline in U.S. 3rd Quarter GDP provided support earlier in the trading session along with weaker equity prices.  The strong interest in fixed income instruments could be a sign that investors are looking for protection from risky assets in safe-haven assets like the Treasuries.  All of this activity points toward perceptions that the U.S. economy is still in a weak state.

Equity futures sold off early in the trading session and remained rangebound throughout the day in thin, lifeless trading. The combination of the weak GDP number and lower consumer confidence helped to encourage selling early in the trading session.  Technically, the S&P 500 and the NASDAQ are the weakest markets.  Both produced closing price reversal tops last week and both failed to make new highs for the year. Signs that the economy will remain in a weak state are beginning to weigh on traders’ minds leading some to take a little money off of the table.

Sideways-to-lower U.S. equity markets helped prop up the Dollar on Tuesday as traders became more averse to higher risk assets.  Trading conditions were thin and lifeless which made it difficult to determine if today’s action was being triggered by holiday liquidation or U.S. economic reports.  Nonetheless, the trading action was not normal which set-up the possibility of bull and bear traps throughout the day.

Traders were also indifferent to a better-than-expected improvement in November Consumer Confidence.  This news failed to fuel a rally in equities but helped underpin the Dollar.

Early in the trading session, China’s bank regulator warned Chinese lenders that they would have to strictly comply with capital requirements or face serious consequences.  If this announcement leads to a tightening of credit, then it could have a negative effect on China’s expansion and commodity-based currencies.

The December Euro finished virtually unchanged today on light volume. This morning’s Ifo economic sentiment survey showed that German confidence increased more than economists forecast.  This report is provided support for the Euro today.  Technically, this market is still struggling with the psychological $1.5000 barrier.

Aversion to risk helped the Dollar gain against most currencies with the exception of the Japanese Yen.  Repatriation as well as weak U.S. economic news pressured the Dollar versus the Yen. 

December Gold held steady to better today in tight, low volume trading. The lack of direction in the Dollar and this week’s U.S. holiday kept bullish traders on the sidelines.

January Crude Oil finished lower on weaker stocks and a stronger Dollar.  Reports showing the U.S. economy is faltering also weighed on crude oil as they suggest that demand should continue to drop. The chart pattern looks as if crude oil prices are getting ready for a sharp break.

Published on  Wed, Nov 25 2009, 00:59 GMT