Archived IMT (2010.07.21)

US 2-YEAR YIELDS remain at 0.58%, flirting with their all time lows as not only the Fed funds rate is seen unchanged for at least another 9 months but also due to the possibility of further easing. Aside from reiterating rates will remain low for an extended period, he could raise easing alternatives to cutting rates, such as lengthening maturity of its Agency/mortgage back securities or reducing interest on bank reserves (in order to encourage banks to lend out more), in which case renewed USD weakness will ensue. Also keep an eye on 10 yr yields flaling below the 2.90% level. AUDUSD maybe among the big winners from a dovish testimony in the event that equities are emboldened by a dovish Bernanke. 0.8880 will be the resistance to break (61.8% retracement of the Apr-May decline). An intraday pullback to 0.8750 is not ruled out but daily tone remains well bid.