ECONOMIC DATA 01/29/2009: 8:30 AM US DURABLE GOODS (-2.0%), US WEEKLY JOBLESS CLAIMS (575K). 10:00 AM US NEW HOME SALES (400K). 10:35 AM EIA INVENTORY (NATURAL GAS). 1:00 PM US 5 YEAR NOTE AUCTION.
TREASURIES PLUMMET AS FOMC INDICATES THEY WILL FOCUS ON PURCHASING MORTGAGE SECURITIES INSTEAD OF TREASURIES.
US Treasuries continued their daily rollercoaster ride, capping the session off with a strong downward move in the long end of the curve as the comments from the FOMC meeting suggested that the US federal Reserve will apply its resources toward purchasing mortgage & agency debt instead of Treasuries in order to drive down home loan rates and stimulate the borrowing sector. The post meeting statement by the Federal Reserve suggested that the recession and lower interest rates are likely to be primary elements of the global economy for some time to come. There was an inclusion which stated that there is some risk that inflation could persist for a time below rates that best foster economic and price stability in the long term. By the Federal Reserve's own admission, the balance between stimulating the economy with massive capital infusion and potential inflation (if not hyperinflation) is a precarious one to say the least. The likelihood of walking that fiscal tightrope without falling to one side or the other will be one of the greatest challenges to any governing body in generations. The markets also fell on profit taking from short term traders after yesterdays run up and the inability to hold above key resistance levels.
Treasuries will likely take their next cues from Thursday's record US 5 year note auction. Auction results have been a mixed bag this week with shorter term government debt having a greater level of acceptance. The anticipation of debt which is considered to be at the long end of the potential economic recovery period may give some indication about a timeline and whether avenues of economic opportunity will be available in greater quantities than this period of capital preservation.
Technically, March 30 year futures have returned to test the major support level of 128.12. Should this level break, the market could be setting up for a downward move to near the 126.20 level. In the short term, the market could move with a consolidation range of 129.20 resistance and the 128.03 support.