The markets face another week on relatively easy street in terms of Treasury supply. Even though the Treasury is auctioning a big slug of longer term paper, it is paying down bills. Thursday will see a cash paydown to the market, and the big note and bond settlement a week from Monday will see only $23 billion in new paper, which is about half of the usual mid month supply hit. The government has benefitted from a surge in tax receipts toward the end of March and in early April. If that continues through April 15, then overall, April will be a light month supply wise.
The market only had about 40 minutes to react to the expected weak jobs report in the stock index futures. The reaction wasn’t what I expected. I had thought that a bad jobs report would be like ringing the bell for Pavlov’s dogs as traders salivate in anticipation of the next treat from their handler, Ben. The guys trading the futures didn’t agree with me, and they dumped.
Holding down yields during note and bond auction week is Job One for the government and its co-cartel members the Primary Dealers, who still hold record long positions in their longer term Treasury portfolios. So I think they’ll be happy to have more bad news to keep the cash flowing into the government bond market. With no big economic releases coming this week, the best way to do that is to shake the stock market tree.
The public is still buying bonds like mad and the markets are getting renewed help from the foreign central banks and the commercial banks in the last 2 weeks. That could underpin a return to a bullish tone for stocks once the big Treasury auctions are out of the way on Thursday. All in all, the pattern looks weak for stocks and strong for bonds early in the week, with Thursday afternoon shaping up as an opportune time for reversal.
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