Treasury Outlook for August 5 , 2010

Treasuries backed off on Wed. after reaching new contract highs for Sep 10 yr futures overnight. The culprit was a slightly higher ADP report, which still came in at an anemic 42K. ISM services is also a smidgeon above very weak expectations, but the prices paid component slid to 52.y, its lowest level since October.

The damage however was contained as the market has not moved through any support levels of note. What the move may have told us is that players are at least not very short going into the jobs report. More? Given the 6 point rally in Ten’s on the day QE 1 was announced, (even with some type of plan by the fed anticipated) traders may be leaning to the long side in anticipation of some sort of announcement by the Fed on Aug. 10?

Supply for next week was announced at 34 bil in 3-year notes, 24 bil in 10’s, and 16 bil in 30 year bonds. Some had been looking for a bigger drop in the amounts but only 3 years were lessened by 1 bil. from the last auction. While auction amounts have backed of from record highs earlier in the year, the inventory (especially in the long end of the curve) is filling up the shelves after the 7-year absence of 30 year binds from 2001 till 2008.

Markets should be in more of a wait and see mode today until the jobs report on Friday.

For Today

The only data is Initial Claims (exp. 455k to 460k). Ten Year Futures support at 123-14, 123-03 and 122-27. Resistance at 123-30, 124-03 and 124-08.5. Yields look to trade between 3.000% and 2.883% before trend takes hold.