Daily Futures Commentary May 19, 2009

Tuesday, May 19, 2009

Soaring Ten-Year Treasury Note Yields are indicating that traders are once again dumping government debt instruments in favor of higher yielding assets. With equity markets rallying while Treasuries are falling, money is clearly leaving “safer” investments and chasing yields elsewhere. The break in the June T-Notes and June T-Bonds is likely to accelerate following the release of housing data this morning which should indicate that the U.S. housing market is bottoming.

Pay close attention to the government debt yields as they will indicate the direction of investor sentiment. Falling yields indicate risk aversion while rising yields will show that investor appetite for risk is increasing. As trader appetite for risk grows, look for higher risk assets such as equities and most foreign currencies to rally.

This assessment could not be more evident than with the June British Pound this morning. News that the U.K. inflation rate dropped to a 15-month low in April under normal circumstances would have triggered a sell-off, however, traders chose to ignore this report overnight and instead decided to focus on the long side because of strength in the global stock markets in particular …
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