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Auction Week: Sponsor The Deficit, Buy US Treasuries
Submitted by Nic Lenoir of ICAP
We have bills, 2Y, 5Y, and 7Y auctions this week. Ever since late June auctions have had a tendancy to be better subscribed than expected. There have been a few pieces on the increasing volume of US Treasuries purchases by commercial banks, and how Treasuries still represent a relatively small portion of banks' assets compared to historical averages. The key point is that a lot of the buying has happened during auctions, which is why they have been well subscribed on average, and we have seen relative weakness in US government bonds the weeks ahead of the auctions to balance it.
Last week and the prior treasuries have been ranging, and late last week we had periods of weakness, which would lead us to believe we will see solid buying this week as space has been cleared on the shelves to stack some more. The level indicated for 10Y futures last week at 116-18 is still support and we have a bullish preference as long as we don't close below it. The attached chart shows the choppy range we have been trading in. From an Elliott wave standpoint there are several alternate counts possible, but as long as we remain in the greater 113/119-13 range there is little reason to get excessive conviction noe way of the other. An exit from this wider range is likely to be dictated by deficit policy and will probably be a knee-jerk reaction to what the US treasury does. More supply and unchecked deficits would lead to a sell-off despite any possible extension of quantitative easing, while if the pace of issuance slows and there is no extension of Treasuries purchases by the Fed the market is likely to feel more confident about owning US bonds and prices will rise.
Good luck trading,
Nic
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New POMO activity... $4 billion; most expiring in 5 years... how much left?
@deadhead
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GS just put ZH on conviction buy list. IPO forthcoming shortly as part of the continued foray into the media.
Rumor has it that TD will take over Dennis Kneale spot, do the Jim Grant bear to bull flip, the US economy will be saved by the fight club gang.
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Why do we have this charade of POMOs and treasury auctions, when the Fed should simply take delivery of treasuries rather than give Goldman and PDs commissions for "handling".
This is goofy.
why doesn't US govt just repudiate debt and screw everyone. After all its the world only super power.
You lost me as soon as you mentioned Elliot Wave...
whatever.
you lost me as soon as you mentioned Elliot Wave counts.
You lost me as soon as you mentioned Elliot Wave...good luck with that.