US Treasuries rebounded from the long Easter Weekend after failing to breech key support levels and the Federal Reserve staged its largest purchase to date of Treasury debt in an effort to keep investment and loan capital available to consumers and business. The purchase of $7.3 billion of Treasuries is the first of three scheduled purchases this week. It appears that the Fed sought to take advantage of the highest yields/lowest prices in nearly a month, as well as staging a significant purchase before volatility in the market picked up in the wake of a slew of corporate earnings announcements this week. The purchases were concentrated in the normally well received 2 and 3 year notes. The Federal Reserve thus far has purchased a little over $43 billion of Treasury debt since March 25th, when the FOMC announced its plans to add nearly $300 billion of US obligations. The post holiday stepping up of Treasury debt purchases may be an attempt by the Federal Reserve to establish a support for bond prices in order to spur lending for home purchases, which often pick up going into the summer months as buyers seek to establish residency before the new school year.

 

 A new chapter in the tug of war regarding Treasury prices appears to be unfolding. On the one hand, the step up in Fed Reserve purchase should put a floor under prices for the medium term as traders realize at certain support levels, short traders will have to contend with Fed Buying. The influence of these purchases could wane as stabilization reenters the corporate debt market. This is being reflected in the CRX Index- a measure of the prices paid to insure debt from default. The index showed that the cost has dropped over two basis points in April. The appearance of exceptional value and improved safety within the corporate debt market should eventually bring back Treasury supply issues to the forefront, as debt holders take an objective look at the long term inflation picture balance sheet of the US government and perhaps begin to ponder the question “If this was a company, how long could it stay in business running like this?” No one entity is bigger than the market.

 

Technically, June 30 year futures continue to range trade within a narrowing channel, signifying that the chance for a trend breakout is increasing. The market continues to fail on the downside at the 125.12 support level. If this level does finally break, and technically it should, the next downward target for 30 year futures should be 122.17. Resistance should set at 129.13, with significant upside resistance at 131.10.

 

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US M9 (US 30 YRS)

125.265

127.130

125.180

127.030

+105.5/32nds

TY M9 (US 10 YRS)

122.060

123.080

122.060

123.035

+25/32nds