Treasury Outlook for Aug 17, 2010

Summer doldrums and what it means? Apparently the quiet time that is the end of the summer does not mean markets stop, it means whatever is in place stays in place. In this case the Treasury rally continues with little to stop the current trend on the radar other than the occasional profit taking.

10’s reached the 2.57% level Monday with little affecting the trade. On it’s way to the psychological level of 2.50% and the Fed buying about to offer a backstop the train keeps rolling. Traders are getting very comfortable holding on to longs, and that may be the only bearish sign out there.

PPI and Housing Starts? not likely to to stop the momentum. Housing starts need to get back to the 750k level to look healthy and PPI running at 1 – 2% ? hardly what we need in terms of re-inflation.

Stocks ran into key support at the 1065 S&P level, holding above this 50% retracement level for stocks bodes well for the rally since 1002 S&P. Maybe a rally here could stall Treasuries ? or maybe not, but the stock / bond divergence is getting hard to believe .

Fed buying of securities begins today with selected 2 year issues and continues on Thurs. in selected 10 year issues adding to the current bid to the market.

For Today

Housing starts ( exp. 565k to 550k) permits( exp. 570k) , PPI ( exp. +.1% to +.2%, +.1% core rate) and Industrial production ( exp. + .6 to +.8 , cap util. 74.5 % to 74.8%) are released . Ten Year Futures support at 125-28, 125-18.5 and 125-06. Resistance , again an exercise in creative line drawing at 126-13, 126-18 and 126-28. Yield range expected between 2.627% and 2.500%.