Treasuries Soft Amid Thin Trading

Target resistance is expected over the next few days

Treasuries were soft at the close on Monday, with longer dated paper leading the drop. There was little news behind the move. Pre-Greenspan squaring was noted and the softer tone in the spreads was indicative. A recovery in the stock market was also topical. However, volume was light and traders were cautioned from reading too much into the session decline.

Indeed, the drop left the longer-term pattern intact and we looked for prices to extend the "flagging" formations set in place over the last few weeks. These patterns measure to "well above" contract highs and a more conclusive run toward target resistance is expected over the next few days. The March bond was off over a half point on the day, with prices erasing the gains set Friday at one point.

A continuation lower in early dealings on Tuesday would not surprise but a conclusive move below the 103-24 low for February would. A run back over the 105-03 peak from Feb. 9 would force a violation of the 105-14 high from Feb. 1, setting the wheels in motion for a test of the 106-20 high. There is plenty of action on the docket for Tuesday and a clearer understanding of intentions should unfold.

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