ECONOMIC DATA 01/09/2009 (ALL TIMES EST): 8:30 AM-US NONFARM PAYROLL (-500000).US UNEMPLOYMENT RATE (7.0%). AVERAGE HOURLY EARNINGS (0.2%). AVERAGE HOURLY WORKWEEK (33.5).
TREASURIES REBOUND ON BETTER THAN EXPECTED 10 YEAR AUCTION, TREASURY PURCHASES DEBT TO DRIVE MORTGAGE RATES TO NEW LOWS.
US Treasuries staged a rally on Thursday as better than expected results from a $16 billion auction of 10 year notes signified a return of perceived value in higher yielding government debt instruments. Treasuries received additional support from the Federal Reserve purchase of $10.2 billion of agency mortgage bonds in an effort to lower mortgage rates. This represents the first of these purchases for 2009 and resulted in a drop in many fixed 30 year mortgages below 5.0%. Expected increase in mortgages refinancing would give a boost to Treasuries, particularly the 30 year bond, as mortgage providers will look to buy government debt as a hedge.
The Bid to Cover ratio for the auction came in at a better than expected 2.59, with the yield at a record low of 2.419 for a coupon rate of 3.75 %. The success of this auction brings back to light the influence that government debt will have as a foundation for financial portfolios, both institutional & consumer based, due to the more attractive yield levels on longer term debt. Expectations for a long economic recovery despite President Elect Obama's call for quick passage of a $775 billion stimulus plan could result in a resurgence of Treasury buying as a foundation for securing returns on portfolios, particularly at these levels which appear to be setting up as a range where the initial elements of the economic recovery as perceived by the government can begin to work.
Technically, 30 year bond futures remain in a tight channel. The market did trade up to the resistance level of 133.12 before retreating back below 133.00. The market appears trapped in a tight channel with support levels beginning to increase. Look for new longer term support level at 129.21. A breakout to the upside could see Treasuries rally to 134.00, with momentum building above this level to 135.14.