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Treasury & Bond market review (weekly), after 4th May, 2012.

Some sections of the market were looking for further stimulus by ECB or an assurance from Draghi. I think that type of assurance would act as a boost for market. But here Draghi has different approach, as he thinks that liquidity is abundant in the Euro zone. This time Draghi emphasized more on Growth, as I said in my past reviews that I am not sure how growth will come with lots of austerity measures and cuts!  ECB hold its interest rate, which was already discounted.

Spain’s Bond auction was quite good, though yield was higher considering its previous auction. Here I think that since it was below 5% so that is not much disturbing, especially after last week’s rating downgrade by S&P. But situation was not same for France as their borrowing cost declined in their Bond auction, in spite of their election related worries. Greece’s debt restructuring helped them to secure upgrading from S&P.

Euro zone service & manufacturing data and other reports helped German 10-year Bonds to gain for 3rd week in a row. Spain’s GDP report was not good; it affected their 10-year Bonds. French 10-year Bond also gained in middle to later part of this week.

4th May, 2012
4/27/2012-5/04/2012 (%)
4/20/2012-4/27/2012 (%)

2-Year Treasury
5-Year Treasury
10-Year Treasury
30-Year Treasury

Different macro reports and especially US jobs report helped US Treasuries to gain in later part of the week. US Treasuries advanced for 7th straight week. Most of the long-term US Treasury yield dropped more in the last day due to US jobs report.

Treasury & Bond market forecast for coming week.
I think that an outcome of French presidential election is important for policy matters in Euro zone and for Greece it is about their austerity measures and cuts. So next week market may react according to these events. After last day’s US jobs reports trend toward safer assets may again increase and also the prediction about QE-3, so in early days market is expected to be under pressure.

Though 2–Year US Treasury Yield tried for an upward move but overall it was flat. It is still moving around 0.26–0.28 range, which is acting as a good support for it. If it breaks this support then next level is 0.22. Due to oversold position, it has more chance to test higher levels. In the upside 0.32 can be its initial resistance.

I was expecting that 5–Year US Treasury Yield will correct little more. If things go this way then it may try level below 0.75 in coming days. In the downside its maximum target is 0.70 because if it drops more then it will not react on that pattern which I mentioned in earlier weeks. I am still positive about that pattern which it can trigger if it breaks 1.20 in the upside. But if it tries to go in the upside in coming week then it will get initial resistance at 0.90.
I was expecting drop up to 1.85 for 10–Year US Treasury Yield and I am still maintaining that level. I think that it will get good support in 1.80–1.85 level. From September, 2011 it is moving in a channel so if it follows that then it has more chance to go up from this 1.80–1.85 level. In the upside 1.95 will be its initial resistance and thereafter it has good resistance at 2.05.
30–Year US Treasury Yield was flat and I still expect that it can drop more; if it drops below 3.05 then it will get a good support around 2.90–2.95. I am not expecting level below 2.70, because in that case it will not trigger that pattern which can take it at around 4.00 level. It has initial resistance at 3.20 level and it may also try to fill up the gap in the upside.

I read about a sovereign wealth fund of Norway, which sold all its Irish and Portuguese govt. Bonds and they added Emerging market Bonds in their portfolio. Now this not only tells about the growing trend but also about the future uncertainties.
Someone told me that Italian and Spanish banks are running out of cash, which they borrowed from ECB’s 3-year loan program. Now if that is true then it is not clear to me that how they are going to buy government Bonds in future! 

NOTEPlease see the disclaimer of this blog.


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