SubscribeDaily Futures Commentary May 13, 2009
Wednesday, May 13, 2009
Treasury market traders now have a new worry. Yesterday an article in the Financial Times warned that the U.S. may lose its AAA debt rating. This news triggered a sell-off in the June Bonds and June Notes. Both markets had just begun to exhibit signs of bottoming when the reaction to the article hit the market.
The current time period represents a lull in the financial markets or in other words, a break between Treasury auctions. This was supposed to be a time when the markets would be allowed to rally while taking a break from the excessive supply which has been hitting the interest rate markets. Additional upside pressure was to be provided by the Fed which was expected to support the Treasuries by purchasing government debt.
Instead of finding reasons to cover shorts or look for reasons to go long June Bonds and June Notes, traders are wondering if they should initiate or reestablish new short positions given the possibility of a debt rating downgrade.
Reducing the U.S. debt rating will drive up the cost of borrowing which is already pointed in that direction due …
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