Treasury Note Futures Rally ahead of Fed Decision, Comments

December 14, 2016 5:39AM CST

Long-term Treasury futures are in positive territory despite the looming, but expected, rate hike from the U.S. central bank this afternoon.

The March contract in 30-year bonds was up .76 percent at 149-29 in mid-day commodities futures trading, after falling to a 17-month low on Monday. The same contract month in 10-year note futures last traded up .32 percent at 124-100.

Analysts say a short covering rally is occurring in 30-year bond futures today ahead of the Federal Open Market Committee statement at 2 pm CST. A press conference is scheduled for 2:30 pm CST, and many commodities futures markets participants are on the sidelines until this afternoon despite the near certainty of a rate hike. The probability that the FOMC will increase its fed funds rate today is almost 100 percent, compared to 1 68 percent possibility of a December rate increase.

Meanwhile, some Treasury futures analysts within the financial sector of commodities futures markets are debating the possibility of a longer-term Treasury note futures contract. In a report, they cited the high costs of a rise in interest rates and expectations for debt-funded fiscal spending in President-elect Donald Trump’s administration have prompted some analysts to question how best to manage financing costs.

Back to present time, aside from the Fed decision this afternoon, the economic calendar contained several reports of relevance to the commodities futures markets.

The U.S. Department of Commerce reported that November Retail Sales increased .1 percent when a rise of 0.3 was expected. Within the same report the ex-autos portion was up .2 percent, compared to an expected a 0.4 percent increase. Economist said the weaker-than-expected retail sales numbers in November may suggest a slowdown in consumer spending in the fourth quarter after solid gains in the July-September period, but consumers are still spending.

The November Producer Price Index increased .4 percent against estimates of a gain of .1 percent, while the producer price index, excluding food and energy, was up .4 percent when an increase of .2 percent was expected.

November industrial production declined .4 percent, which compared to expectations of a .3 decline, while November capacity utilization was 75 percent, compared to anticipated reading of 75.1 percent.

Lastly, business inventories fell 0.2 percent in October, the largest drop in a year, according to the U.S. Department of Commerce. Economists expected the report to show a slight decline of 0.1 percent.

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