30 year treasury bond future has moved from its December highs of 140 handles to around 130 levels. Yields have increased almost 75bp in last 2 months. Last 3 months we had considerable uncertainty in market direction. But treasury market has shown determination towards higher yields. Last week we have seen inflation report suggesting smack of inflation. Unemployment claims suggested labor market is worsening. Treasury investors across the world are still anchored to theme of safe haven buying. But impending treasury supply scale is showing markets are here for higher yields. Stock markets have already dropped below November lows last week. This is clear sign of markets slowly digesting fact that worse is yet to come. Last week talks of nationalizing banks have intensified. Treasury has mentioned that it is going to conduct stress tests with banks to determine their capital requirements. Since Citi bank and Bank of America (Merrill+Country wide) are serious holders of these securities and they will need deep treasury capital. This capitalization is tantamount to nationalizing banks. Markets needed this rumor to go into selloffs.

This week will be a volatile week. We have some indicators coming from housing sector, consumer sector and Bernanke’s testimony to market. Market will be looking for state of housing sector through these indicators and Bernanke;s speech to understand his view of how monetary policy is working to mitigate current crisis. This week, I would like to position for a bullish bond prices and may be further lower levels in equity index markets.


Dow Jones index is below its November low. RSI is at 30%. Indicating market is near over sold region. This week we can expect a pullback from current levels to higher side. But economic indicators might drive market to new lows. I will position for a low of 7100.

What’s going on with Gold? Gold is really on a rising tide. What factor is driving its rise. Equity markets are tanking, treasury market is in bubble state (this is what experts have concluded about it). Gold has attained a clear safehaven status as investors have figured out US treasury is going to flood the market. In this situation, gold has a near term target atleast close to 1100 before a pullback occurs.