The 10-year US Treasury note is now trading at the lowest level since late November with the yield rising above 3.51% for the debt. Since topping in early December, the note has pulled back on a resurgence of strength in financials along with record issues by the US government amid a large budget deficit. Investors are beginning to see signs that the worst the recession may be over as confidence figures rise and contractions in manufacturing become less severe. China's PMI actually rose for the fourth time to post expansion in the country's manufacturing sector for the second consecutive month. Such indicators hint at the success of the nation's large five trillion yuan stimulus and raise optimism that demand will recover and other stimulus packages will be successful in preventing further deep cuts in the labor market. Financial firms have been commenting since March on healthy quarterly results and have made good on such promises as 14 companies involved in the stress tests have reported better-than-expected results. Since then, equity markets in the US have rallied significantly off their March 9th bottoms and while the Dow30 and S&P500 still remain negative on the year, the NASDAQ is actually higher by more than nine percent. Elsewhere, European markets have also recouped large losses and are now down just a few percentage points year-to-date. Risk appetite is certainly increasing and investors have consequently begun to shift money away from safe havens including yen purchases and treasury bonds. Perhaps as important as the improving economy is a large increase in the supply of treasury bonds issued. The government needs to raise $3.25 in the fiscal year and plans to sell a record $71 billion in long-term debt next week which includes $22 billion in 10-year notes to fund the budget deficit.
On the technical front, the Treasury bond has been in a downward trend since the middle of December and has not touched its upper trend line since a resurgence of fear caused a sharp temporary rise in early March. The note had until recently failed to breach a line of support that echoed all the way back to the firesale of Bear Stearns to JPMorgan Chase. Despite now trading below that price, the bond still remains above the mid-September peak that occured as Lehman Brothers collapsed and Washington Mutual was seized by the FDIC.
