Bonds Boosted By Bernanke Statements, But Can it Last?
?? Fundamentals
Bond futures have gotten a boost from the debate on the debt ceiling and signs that Europe could be slowing. The Fed has recently backtracked a bit after the last FOMC minutes indicated that the treasury buyback program could cease sooner rather than later. The most recent rhetoric from the central bank states that more easing may be necessary to keep the economy pointed in the right direction.
Overall, it does seem as though there is an air of caution among traders, which could act as support for the treasury market, even if the safety net of the buybacks is not there. Recent economic data shows the housing market at four-five year highs, and today’s data is expected to show a drop in jobless claims, as well as a stronger Philly Fed number. These factors could put some pressure on the Bond market and eat into recent gains.
Fed Chairman Bernanke had indicated that he was concerned at the number of people locking into riskier loans in the current low interest rate environment, and that there could be repercussions down the road when rates normalize. The initial reaction could suggest that the FOMC could be hinting at a gradual, incremental rate increase process. However, the Fed has been very accommodating to the government over the past decade, and traders and institutions could simply view this as a stern warning.
?? Technical Notes
Turning to the chart, we see the March Bond contract bouncing off of support near the 144-16 level. Prices traded below support here for several sessions; however there was no definitive breakout. The next area of resistance comes in near the 148-16 mark.
Prices closed near the 20-day moving average. A close above the average would suggest that a near-term high may be in place. The 144-16 level may be seen as critical to the Bond market. Failure to hold above this market could trigger a tidal wave of selling.
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