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Treasury & Bond market review (weekly), after 11th May, 2012.

French election outcome was not much disturbing but Greece is again creating the fear due to their inconclusive result or it will be better to say that Greek voters voted against the bailouts and those austerity measures. German minister’s remark about Greece may fuel lots of calculations. Market is speculating that Greece may quit Euro but here the important thing is what the Euro zone authorities are thinking! Earlier I was confused about holding back of 1bn euros of rescue money but as situation is developing, now it is quite understandable.

In the last day prediction about economic contraction for Euro zone has increased the fear. German Bunds yields fell to a record and their 10-year Bunds advanced for 4th week; on the other hand Greek Bonds fell for 9th day. Not only worries related to Spanish Banki but Greece is also driving the Spanish 10-year Bond yields in higher zone, as it crossed 6% this week.     

11th May, 2012
5/04/2012-5/11/2012 (%)
4/27/2012-5/04/2012 (%)

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

US Treasuries are gaining for 8th straight week, Euro zone problems are the main contributor in this matter and in the later days of this week it got support from slower Chinese industrial output and JP Morgan’s loss and Euro zone contraction news.

Treasury & Bond market forecast for coming week.
If things go this way then again Greece may face rating downgrade. Experts are saying that if a new election happens then opposition to austerities & cuts will increase their numbers. Therefore the important question in coming future will be, whether Euro zone authorities are going to permit further rescue funds to Greece if they don’t follow their past commitments?
In coming days, if Spanish Bond stays above 6% then it will not be good for them. Outside Germany investors are still favoring US Treasuries, so it will be interesting to see where US Treasury yields go from here!

2–Year US Treasury Yield is still moving flat. It is in oversold position and looks like that is making a base here but in spite of that I think it may drop little more. But later if 2–Year US Treasury Yield reverses then its initial resistance level at 0.27 and if it breaks that then the next level is at around 0.30.

I was expecting 5–Year US Treasury Yield to test 0.75. In the downside its 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. Now it is in oversold zone so if it reverses from this level then it will get initial resistance at 0.835 level and the next resistance level is at 0.90.

10–Year US Treasury Yield is getting support at 1.80–1.85 level, now it is in less over-sold position than many others. So comparing to that it has the chance to drop more from here but as I said in my past review that looks like it is following a trend so if that is true then it has good chance to reverse its position from here. In the upside 1.95 will be its initial resistance and thereafter it has good resistance at 2.05. I think expecting 2.30 is too much for now, in fact if that trend or you can say that pattern is true then it will not test 2.30 level for now. Though things can be different once it breaks out from that pattern. In the whole things will change if it drops below 1.80 and stays there for some time.

I was expecting that 30–Year US Treasury Yield may drop more but still it is above from its support of 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 3.15–3.20 level and it may also try to fill up the gap in the upside. I have a feeling that it may not drop below around 2.80 level for now and it has chance to bounce from that level.

Nowadays market is questioning about the existence of Euro zone on any bad news from that area. It is sure that if Greece does not get any solution then many questions comes about them, considering that big rescue money that is due. Here important question is, will Euro zone problems get a solution if Greece exits?

NOTEPlease see the disclaimer of this blog.


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