US Treasury Futures Report 04/06/2009

Treasuries traded quietly compared to equities in Monday’s session, as the long end of yield curve was held from posting gains and eventually fell back into negative territory. Traders and investors took little heart from the Federal Reserve’s anemic $2.5 billion purchase of Treasury Debt.  Instead, the markets appear to be looking for indications on the inflation picture, as focus turns to the results of Tuesday’s TIPS (Treasury Inflation Protection Securities) auction on Tuesday. The auction of $6.5 million of Inflation protection debt is expected to draw interest by a number of funds that are building positions based on the notion that inflation will inevitably return and challenge yield on government debt. The development of this sentiment resulted in a significant fall in the long end of the yield curve toward the end of the session. The fall in 30 year futures accelerated after equities seemed to find support from comments suggesting that financials should continued to build small earnings throughout most of 2009.

Technically, June 30 year futures have return to the low end of the support/resistance channel set after the FOMC meeting in March. Today’s downward move in the late session could suggest another attempt to test the key support level of 125.120. A break of this level could set up tp test 122.260. Resistance appears to be setting up at 127.180.