Morning Futures Roundup
Can Bonds Hold Without Fed Support?
Fundamentals
Bond futures are lower this morning ahead of housing data and consumer confidence data. BlackRock, the world's largest money manager, also set a negative tone for Bonds by stating investors should favor stocks over treasuries. This, of course, is hardly news, as money managers have been using dividend paying stocks as surrogate Bonds for some time due to extremely low Bond yields.
The bigger news may be the recent statements from Fed Chairman Bernanke indicating the FOMC will continue to provide liquidity to stimulate job creation. What he failed to include in the statement was any mention of the Fed buying treasuries as part of its easing. Traders and investors do not want to lock in low yields with longer dated Bonds, indicating Bonds could fall sharply without the support of the Fed's purchases.
Technical Notes
Turning to the chart, we see the June Bond contract failing at previous support near 140-00 established back in November. Prices subsequently dropped sharply, testing and holding, at least for the time being, with support at the 135-00 mark. The 135-00 level is a critical level for the Bond market, as a failure to hold here could result in a 7-10 handle drop.
The RSI indicator, which slipped into oversold levels, is not recovering, indicating some short-covering buying could disappear. Momentum has remained flat, as prices and RSI recovered, hinting at more weakness ahead.
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About Mike Zarembski
Born in the grain pits of the Mid-America Commodity Exchange (MidAm) in the early 1990s, Mike's futures career soon shifted to the offices of TD Waterhouse in 1999, followed by Xpresstrade in 2002 and eventually optionsXpress in 2007.
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