The traders believe the stock market will be driven by one major catalyst this week.
And that major catalyst will be the price action in Treasuries. Investors will be closely watching to see how this week’s string of auctions are received.
Many are worried that an oversupply of government debt could push interest rates higher and increase the cost of borrowing to consumers and businesses.
This Week’s Treasury Auctions
Monday 3 Month Bills $31B
6 Month Bills $31B
Tuesday 3 Year Notes $35B
Wednesday 10 Year Bonds (3 1/8) $19B
Thursday 30 Year Bond (4.25) $11B
So far those worries are unfounded. The Treasury's $35 billion sale of three-year notes drew robust demand and investors were heartened by a strong measure of foreign participation.
In fact, the sale buoyed the short end of the market, which had been under pressure from fears the Federal Reserve might raise interest rates sooner rather than later.
"This is a good way to kick off this week's auctions," muses John Canavan strategist with Stone & McCarthy Research Associates.
But, as Joe Terranova told you yesterday, it’s the long-end of the curve that many investors fear. And $19 billion in 10-year notes go to auction on Wednesday while $11 billion in 30-year bonds will be sold Thursday.
What do you need to know?
If the auction pushes yields higher, the auction could derail the entire S&P rally, says Ira Jersey, of RBC. That’s because higher yields could push up mortgage rates and that could slow a turnaround in the already beleaguered real-estate market.
However, Bernanke’s whole attempt to jump start the economy is all about keeping private sector borrowing costs low, adds Fast Money trader Joe Terranova.
So -- if it becomes necessary to keep the real estate market stabilized -- it’s possible that the fed buys more Treasuries to keep the mortgage rate down, speculates Jersey.
We'll be watching.
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Trader disclosure: On June 9th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (BTU), (MSFT), (NUE); Macke Owns (TGT), (AAPL), (AGU); Najarian Owns (BX) Call Spread; Najarian Owns (DELL) Call Spread; Najarian Owns (FCX) Calls & Put Spread; Najarian Owns (INTC) Call Spread; Najarian Owns (MCD) Call Spread; Najarian Owns (MOS) Put Spread; Najarian Owns (PALM) Call Spread; Najarian Owns (WNR); Najarian OWns (AMAT) Calls; Najarian Owns (FLR); Najarian Owns (JPM); Najarian Owns (NSM) Calls; Terranova Owns (TER), (XBI), (ABT), (RIMM), (BTU); Terranova Owns (BRCM) & (BRCM) Calls; Terranova Owns July Crude Oil Futures; Terranova Owns August Crude Oil Futues; Terranova Owns (MS) & (MS) Calls; Terranova Is Short (FCX) & (FCX) Puts; Terranova Owns (GENZ) & (GENZ) Calls; Terranova Owns (HES) & (HES) Calls; Terranova Owns (XOM) Call Spread; Terranova Owns (DIS) Call Spread; Terranova Owns (X) & (X) Calls; Terranova Owns (JPM) & (JPM) Calls; Terranova Owns (POT) & (POT) Calls; Terranova Owns (IBM) & (IBM) Calls