Bond Commentary - The Bulls Retain an Edge but Need a Sell-Off in Equities Today
Take a Free Trial of our Daily Comments, Weekly Market Letter and more! Subscribe today or Learn More
While one cycle of central bank meetings is not enough to draw a conclusive opinion, seeing the Bank of England and the Bank of Japan perceived as more hawkish than the US Federal Reserve is certainly a potential major market event. In defense of the US Federal Reserve Chairman, he did indicate the Fed is better off making slow major transitions and the market should not discount the Fed’s ultimate inflation fighting commitment. However, US treasury bonds were none the worse for wear following historically hot CPI and PPI readings over the last couple weeks and they have not seen significant damage from the Bank of England being the first central bank to hike rates. In retrospect, yesterday’s headline initial claims reading justified buying interest in Bonds and Notes which in turn has helped March bonds generally hold above the critical pivot point of 162-00. However, foreign interest in U.S. asset-backed securities resulted in overall net foreign sales of long-term securities of $22.2 billion in October and that combined with hot inflation readings, a developing central bank tightening bias apparently in motion is the type of fundamental evidence to produce a very major long-term top. On the other hand, until the Fed feels the need to openly battle inflation, many traders will choose not to fight the US Federal Reserve with US Treasury sales. While we do not expect a major impact from equity markets today that could be the main force driving treasury prices. In fact, there are no major US or Canadian economic numbers scheduled for today, while Fed Governor Waller and San Francisco Fed President Daly will speak during afternoon US trading hours. Earnings announcements will include Darden Restaurants before the Wall Street opening.
MARKET IDEAS
Unless the US equity markets come under significant liquidation pressure today, we do not expect to see a significant pulse up move in US treasuries especially with the scheduled economic report slate empty. In fact, we see consolidation support in March bonds close in at 163-23 and resistance also close in today at 162-15.
