Daily Futures Commentary May 22, 2009

Friday, May 22, 2009

Yesterday’s failure by the Federal Reserve to complete its anticipated purchase of government assets weakened the June Bond and June Notes. Traders had been supporting these markets for 9 days as the Fed was expected to take supply out of the market ahead of next week’s Treasury auction.

This action by the Fed drove yields higher and Treasury futures lower as traders now expect auction participants to drive up yields next week.

More bearishness is also developing in the market as traders are now starting to price in the possibility of a downgrade of U.S. debt by one of the rating services. Yesterday it was announced that the S&P Corp. had cut the rating of the U.K. because of the huge increase in government debt.

Since both the U.K. and the U.S. have been increasing debt during this financial crisis, some analysts feel it is just a matter of time before the U.S. government debt is downgraded.

June Treasury Bonds are in a downtrend but holding the last swing bottom at 119’15. The trend is likely to accelerate to the downside if this price is violated. …
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