Morning Interest Rate and Treasuries Report

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August 21th, 2012

September Treasury bond prices have made a slight recovery from early lows this morning, although many traders feel that the overall environment today will make it difficult for the market to recover early losses. Global equities have posted gains this morning, and improving sentiment towards the EU debt situation may continue to dampen flight to quality interest in US Treasuries. There are rising expectations that EU members will maintain a united front going into a meeting at the end of the week, which in turn may keep safe haven interest in bonds and notes in a “back burner” position.

With grain, energy and metals prices also showing ongoing strength, which some traders feel is a sign of positive economic sentiment while other traders see the positive outside market action as inflationary despite the generally slack global economic condition. Given the lack of top tier US scheduled economic data today, A speech by a Fed official and private chain store sales figures early on might be given added importance. It is also possible that action in the US equity markets will exert an influence on Treasury prices today.

With bond prices during early trading this morning as much as 1 point and 8 ticks above their recent lows, some traders think that bonds remain vulnerable to further pressure. While the threat of inflation doesn’t look to be a dominating issue in the market just yet, upside extensions in grain prices and the highest crude oil price since May 11th could give the threat of inflation added importance during today’s session.
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