T-Bond trading comment (August 29, 2007)

Well it looks like the 112-00 area will remain a resistance for the foreseeable future. Early in the session, we tested thrice the resistance and thrice the market fell back on a lack of momentum. No economic news were due today and we only had a 2 years auction that went pretty well by the way with a nice bid to cover ratio. We arrived this morning after having already challenged twice the 112-00 level with Asian stock markets getting killed and European's slightly up the market was ticking up a bit.

Until 10h30, the bonds just mirrored the Dow Jones... When the Dow went down the bonds went up and vice-versa. This lasted until the stocks caught a bid to overrun the 1% daily gain. At this point, the bond market did not fall by as much as it was supposed (looking at the earlier activity). This is probably due to the fact that the market is still scared by the liquidity crunch. Afterwards, we started to drift lower as equities kept getting stronger and people relaxed about the liquidty crisis. Talking about this, the Libor is still fixing quite high and this is not good because it kills funding activities.

Continuing in this vein, Bernanke noted this afternoon that "FOMC said it's ready to act as needed". Nothing new here, but the market don't seem to listen...

Tomorrow is going to be an interesting day. We have GDP and core PCE data.
Both these datas will be important as the first will give an idea about growth while the seond data point will shed light on inflation.