Tuesday, May 31, 2011

Treasury Tuesdays

Last week I wrote the following about the Treasury market:

The Treasury market is benefiting from concern about the stock market and the EU situation. Interestingly enough, there does not appear to be any concern on the part of bond traders regarding the budget situation in Washington. However, as I mentioned last week, remember that on the other side of price is yield. I would use 2.75% as the possible low on the yield front, but that's simply a decent round number to use.

It's important to remember that on the fundamental front, the Treasury market is the primary market to invest in right now. As such, it's benefiting from the increased concern about the economy and the EU situation.
Let's go to the charts:

The IEFs are in a strong position. Prices are using the EMAs for technical support. All the EMAs ar e moving higher and the shorter EMAs are above the longer. The A/D line shows money is flowing into the market, but the CMF is showing decreasing interest. Also note the MACD -- while still giving a buy signal -- is still positive.

The long-end of the curve shows the same issues as the IEFs. However, prices need to move through resistance.

I would still be long Treasuries right now. There is little reason to think the Fed will raise rates anytime soon. The economy is slowing down, which will probably decrease inflationary pressures. There is still concern about the EU situation, making safer asset more attractive. Also adding to the attraction is the lack of upward movement in the stock market and decrease in commodities. I would still use 2.75% on the 10 year as a line to look for (a commenter asked why I chose that number. The answer is it's a round number that the bond market likes).