A Government Trick?
In their biggest one-day move in 13 years, T-bonds exploded higher after the
Treasury Department said it would stop issuing the 30-year securities, a
move it had intimated, but never explicitly said, would occur at some point.
The Treasury had already been on a multi-month campaign of retiring T-bonds
as it used the government surplus to pay off debt. It had already designated
the 10-year note as its benchmark earlier this year. But today’s
announcement came as a surprise and the perceived reduction in supply
catapulted T-bond futures.
Price action has been
a tip-off: T-bonds
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List for weeks and have also been highlighted in recent Nightly Futures
Reports. Although they ticked lower on the opening, T-bonds traded above
their opening five-minute range 45 minutes into the session, triggering an Off The Blocks
setup. Players long from this point were launched up two whole points in the
30 minutes following the announcement. The December contract closed up 1
30/32 at 110 14/32. The high of the session was 111 10/32. Also from the Momentum-5
List, 10-year notes
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good on an Off The Blocks
long entry.
With the Treasury Department stating it will no
longer issue the long-dated maturity, the supply of instruments with 30-year
durations will shrink, at least temporarily (see
Tony Crescenzi’s insightful article on the subject on TradingMarkets’
home page). Lower supply results in higher prices. Bond yields have an
inverse relationship with their price, with higher prices resulting in lower
yields. The Department of Treasury also achieved the desired economic effect
of driving down the long end of the yield curve, a factor that could lower
mortgages and stimulate the housing market, construction, and related
industries.
Stock index futures started higher in something of a relief
rally following release of the first estimate of Q3 gross domestic product.
GDP fell by .4%, where consensus estimates were forecasting a 1% drop. Index
futures slipped after the initial jolt, with S&P futures
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falling to tag yesterday’s close before rallying back to within 1.50 handles
of the intraday high and promptly selling off for a gain of 1.50 to 1060.70.
The flat close belies movement of nearly 70 handles in intraday swings.
Dow futures
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1365.50.
Also highlighted in Wednesday’s
Setups,
unleaded gasoline
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after closing at a double bottom Tuesday. December crude oil
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and
heating oil
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.5979 at .0220, respectively.
In a move that rescinds
their downside bias, February 2002 pork bellies
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spurted to their daily limit of 3.000.
December lean hogs
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at 51.650, their daily limit.