Three Reasons To Like Treasuries
Interest rate traders focused on three factors today, sending debt futures for their sixth gain in seven sessions.
But first, from a technical standpoint, note that both the benchmark 10-year note
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PowerRating) and T-bonds
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PowerRating) registered on the New 10-day High List and made good on Off The Blocks entries after trading above the high of their opening ranges.
Traders eyed low inflation rates and the likelihood of another .25% snip in interest rates to 3.5% from the Fed by August. Lower rates mean higher bond prices as yield and price possess an inverse relationship.
The other two more fundamentally-relatd factors inspiring bond buying today were safe-haven related. Stock indexes slumped in the kick-off to a weekly calendar heavy with corporate earnings results. As stocks fell, institutions rotated into the perceived safety of bonds.
A crises in confidence in emerging-market debt — spawned by Argentina teetering on the brink of default –received another round of bad news today after political opponents to the ruling party failed to back spending cuts to reduce a balooning budget deficit and avert a default on debt payments. Here, US Treasuries also received flight-to-safety buying: 10-years closed 13/32 higher at 104 26/32 and T-bonds added 16/32 to 102 10/32. Consistent up days in both markets also primed the contracts for larger-than-normal moves, as both registered on the 6/100 Low Volatility List.
In the currencies, Japanese yen
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PowerRating) continued lower off a 1-2-3-4-5 Pullback From Lows pattern for a second day as they set up to test recent contract lows, ending down .0036 at .8023. In its monthly report, the Bank of Japan downgraded its outlook on the Japanese economy for the second straight month as exports slowed. The fifth straight monthly decline in orders for Japanese chip-making gear reported today only underscored the slowdown in economic activity. The yen is within easy striking distance of a new contract low.
Silver
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Corn futures
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PowerRating) fell sharply for a second day as traders reassessed whether changes in the crop forecast and weather outlook last week merited a 28-cent run in prices. As pointed out in Friday’s recap, Sep corn’s run was capped at the confluence of the 168.8% and 261.8% Fibonacci extensions of prior swings.
For today, both Sept. and Dec. corn
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PowerRating) pulled back 50% from their June 25 through July 12 rallies and found support at these levels. According to the recent Commitment of Traders Report, although funds have exited short positions en masse, they still hold a net short position. Despite the past two days’ downdraft, this gives corn a bullish slant because it means more short covering could be in order and that funds still have plenty of buying power. CU1 closed down 8 at 216 1/4.
Presaging a potential move to its lowest level of the year, August heating oil
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PowerRating), from the Implosion-5 List, was lower for most of the session in its sixth straight decline, but rallied in the final minutes to notch tepid gains, a potential late fake-out play.
What’s happened in the fall-out from the boom and bust of volatile energy prices this year is a build up in heating oil inventories that now stands about 22% above last year’s levels according to the American Petroleum Institute. This is also the time of year when refiners begin shifting from gasoline production to heating oil production in preparation for the winter months. Heating oil also had heavy volume late last week as the market declined, a negative sign.
In the same “heating fuel†category as HOQ1, natural gas
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PowerRating) opened at its Pullback Off Lows trigger and sank more than 5.3%. Prices in this contract are at a one-year low.
As mentioned in Friday’s Mid-Day Alert and Futures Recap, cotton, hitherto on a search-and-destroy mission to locate a bottom, was setting up today to trigger a same-day Turtle Soup reversal. This morning cotton gapped lower, but turned around from contract lows, triggering a Turtle Soup Buy reversal at the prior July 3 low (at 40.61). Basis December
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PowerRating) cotton rallied through the session to close .43 higher at 41.34. Of course, this sets up a Turtle Soup Plus One Buy signal for tomorrow in the Dec. contract.