Bonds Steady As Fiscal Cliff And Non-farm Payrolls Loom
?? Fundamentals
Bond bulls and bears have reached a stalemate, as uncertainty surrounding an agreement in Washington to avert the so called “Fiscal Cliff” and upcoming jobs data have neither side confident in their positions.
For Bond bulls, concerns that failure to reach an agreement on extending, in some fashion, soon to be expiring Bush Era tax cuts and planned spending cuts could rekindle a recessionary environment in the United States. This fear may be encouraging some investors to avoid “risk” assets and spur further inflows into “save haven” investments, such as U.S Treasuries.
However, Bond bears will note that Bond prices could be vulnerable to a sell-off if a last minute agreement is reached, especially if any agreement involves more money for “stimulus” spending and fails to make any significant headway into dealing with the mounting U.S. deficit.
On top of the looming “Fiscal Cliff”, bond traders also have the November Non-farm Payrolls report to look forward to on Friday. Many analysts are not confident that we will see a repeat of the 171,000 jobs created in October. Current estimates are for a more subdued 80,000 to 90,000 job increase last month, with the unemployment rate expected to rise once again to 8%.
The wild-card in any potential move in interest rates may be the action by the Federal Reserve, which has signaled a willingness to be a buyer of longer-dated Treasuries, as long as employment and economic conditions warrant an “accommodative” monetary policy. So unless we start to see a marked improvement in both the employment and economic environment, the near-term bias for Bond prices appears to favor the bull camp.
?? Technical Notes
Looking at the daily chart for the March 10-year Note futures, we notice prices trading near the upper end of the 1-point price range we have been in the past month. Prices are above the 20-day moving average, giving some support to bullish short-term momentum traders.
The 14-day RSI is turning strong, with a current reading of 60.36. The November 16th high of 133-27.5 looks to be the next major resistance level, with support found at 132-25.
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