10 Year Treasury Futures--Sunday, September 7, 2008
U.S. treasuries were soaring last week as foreign accounts unloaded agency debt and replaced it with official government paper.
The move off the low in June happened in a 3 wave correction.
Weekly chart of the nearby 10 year future:
On a daily chart one can see how the third wave of the correction traded up to the 1.272 fibonacci level, then found some resistance. Then on Tuesday of last week it broke through this level and moved swiftly up as the switch from agencies to treasuries accelerated, bringing it on Friday to the 1.618 level. The news on Friday afternoon that the bail out of the GSEs would occur over the weekend (as it has) broke the rally, and the market fell back to the 1.272 level (making Friday a key reversal day).
The implicit guarantee of GSE bonds is now explicit. The result: this afternoon the national debt of the United States of America increased by 5,400 billion dollars. There is now no good reason to switch from agencies to treasuries. Bunds, anyone?