ECONOMIC DATA 05/20/09: all times EST

10:30 AM EIA INVENTORY REPORT (Crude oil, products, capacity utilization)

2:00 PM FOMC MINUTES

SUMMARY OF DATA 05/19/09

US HOUSING STARTS (458 K VS. 540K)

US TREASURIES CONTINUE LOWER FOR A SECOND SESSION. MARKET FAILS TO RALLY ON POOR HOUSING DATA. SENTIMENT REMAINS FED WILL BE UNABLE TO HALT HIGHER YIELDS.

US TREASURIES traded lower for a second session as a weaker than expected reading on housing starts failed to spur interest in secure assets. Equities continued to hold onto Monday's gains as commodity and technology stocks continued to support the major indices recovery from last week's 5 percent drop. This positive sentiment managed to overcome a surprisingly weak number on US housing starts. The reading failed to derail positive sentiment after the market digested the numbers and found comfort in the readings on single family home. The numbers also offers signs of fiscal responsibility as the weaker numbers suggest the market's ability to recognize that current inventories still need to be worked through. Overall the markets appear to be suffering from an early case of the “summertime blues” as volume in both debt and equity markets remains below average for the week.

The narrow range in Treasuries is likely being defined this week by support from Federal Reserve purchases of government securities tomorrow and Thursday. In addition, traders will likely seek to cover a large percentage of short positions ahead of the holiday weekend. This occurs primarily due to security concerns. Downward momentum could return next week with the return of the record Treasury auctions and supply concerns, even sooner if the markets perceived the level of Fed buying as lackluster. Treasuries could also lose favor in the wake of growing sentiment that the recovery may find legs sometime next year. This realization would suggest that by the end of the year, inflation and growth concerns may offer a window suggesting that the time for interest rate hikes may have come. Watch countries such as Canada and Australia for signs of a global reigning in of capital and quantitative easing.

Technically, June 30 year futures should likely trade within a narrow channel for the week. Looking at the market end of day, the market should move within a range of 122-175 to 120-310. Wednesday should see a move up to 122-020.

US DEBT FUTURES

OPEN

HIGH

LOW

CLOSE

CHANGE

US M9 (US 30 YRS)

121-150

121-265

121-025

121-220

-3/32nds

TY M9 (US 10 YRS)

120-215

120-245

120-105

120-210

-5.5/32nds