Treasury Futures Report 04/07/2009

US Treasury futures continued to range trade in Tuesday’s session. Prices rose (Yields fell) as uncertainty regarding corporate earnings and concerns about the ability of major financial institutions to rebuild customer trust weighed on equities and drove demand for secure debt that after yesterday’s fall appeared to be positioned at a reasonable value. The flight to security was not hindered by somewhat challenging results stemming from the 10 year TIPS (Treasury Inflation Protection Securities) auction held on Tuesday. The relatively small size ($6.0 Billion) was received at a respectable Bid to Cover ratio of 2.25 with a yield of 1.345%. While the low yield and reception suggest that debt investors have concerns regarding future inflation pressure, the Bid to Cover was significantly lower than the January auction. Investors seem more enthusiastic about the potential for using bargain priced corporate debt with its higher yield and potential for gains as a more effective hedge against future inflation.

Treasuries will likely take some direction from the results of a $35 billion auction of US 3 year notes on Wednesday. The 3 year notes have been among the best received government debt through auction as it has evolved into the benchmark for the expected recession/recovery economic cycle.

Technically, June Treasury Futures continue to trade within its channel. A series of lower highs suggest that the markets should seek to test and possibly break through the key support of 125.120. While this support stays in place, look for short term support levels to set up at 125.240. Resistance should be found at 128.000.