Treasury Futures Rally on Increased Auction Demand
Today’s Treasury auction saw great demand which helped drive up the price of September Treasury Bonds. Investors were encouraged to buy the 3-year Notes at the auction because of the attractive yield and the weakness in the equity markets. Overseas demand was particularly stronger compared to the last three months. This could be an indication that foreign central banks are regaining confidence in the U.S. ability to pay back its debt obligations.
U.S. equity markets fell sharply lower. Investors are beginning to question stock price valuations. The recent rally was triggered by foreign demand for risk and better than expected corporate earnings. Now that demand for risk is diminishing because of the strengthening U.S. economy and earnings results are being questioned, it appears buyers have become scare and longs are exiting existing positions.
Investors are beginning to demand more than better earnings caused by cost cutting measures. They want to see greater spending by consumers driving up revenues. Money is still on the sidelines, but investors may not want to commit these funds until stock valuations get more in line with future earnings expectations.
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