The Treasury 10-year benchmark note is on course to complete its steepest weekly gain in three-months as European leaders struggle to contain their periphery regionÃ¢â‚¬â„¢s debt crisis and before last months NFP report to show hiring in the US slowed (+85k). With Greece facing the danger of a disorderly default has raised the Ã¢â‚¬Å“specter of a run on lenders in other countriesÃ¢â‚¬Â insuring that the flight to quality will continue.
In the O/N session, treasuries have declined,with 10′s backing up+3bp to +2.09%, as global bourses gained after Greece scrapped a referendum on a bailout plan, moving the country closer to receiving Euro and IMF aid again. Papandreou yesterday ditched the referendum to avert a split in his party and lose his grip on power.
Also aiding prices this week was the Fed leaving intact its promise to keep its target interest rate in a range of zero to +0.25% until 2013. Policy makers again forewarned investors of impending dangers. Ã¢â‚¬Å“There are significant downside risks to the economic outlook, including strains in global financial marketsÃ¢â‚¬Â. The Fed remains disappointed in the overall economyÃ¢â‚¬â„¢s performance and that if anything, Ã¢â‚¬Å“downside risk still permeates the future forecasts on both the inflation and employment mandateÃ¢â‚¬Â. The Fed it seems is just looking for the right time to pull the QE3 trigger.
Next week, the treasury will auction +$72b in 3Ã¢â‚¬â„¢s, 10Ã¢â‚¬â„¢s and 30-year debt. With supply, prices at these levels look expensive. Expect dealers to cheapen up the curve accordingly, assuming Greece and NFP allow them to!