Investors in the Treasury market will begin next week by confronting the familiar spectre of possible post-disaster selling of US Treasuries by insurers, following a devastating earthquake in Japan on Friday. But not everyone in the market is convinced that worries over insurer selling are grounded in reality, and analysts pointed to a host of other issues on Friday that could drive Treasury price movements in the coming week.
The Federal Open Market Committee will hold a one-day meeting on Tuesday that will be closely watched for signs that the Fed could start to dismantle its "extended period" language, a pledge to keep monetary policy loose for the foreseeable future.
And two US economic data points will offer important indications of current inflation trends, while on Wednesday housing starts data will provide a look at one of the two sectors - housing and employment - that are said to be lagging in the economic recovery.
To start, traders will take stock of the latest news from Japan, where an 8.9 magnitude earthquake struck on Friday, generating a tsunami that destroyed many miles of coastline in the country's north-east. The death toll had risen to 1,000 by Friday afternoon in New York and was expected to keep climbing.
"There's speculation that maybe insurance companies are going to have to sell to pay claims - that speculation always crops up whenever we have massive catastrophes and disasters," said David Coard, head of fixed income sales and trading at Williams Capital Group in New York. "It's one of those perennial things, it's like clockwork," he added. "There's I'm sure some truth to it, but I don't know how much."
Christian cooper, head of US dollar derivatives trading at Jefferies & Co in New York, said he expected any Japan-related sell-off to be limited. But Cooper said he thought any sales would be unlikely to affect prices significantly in the market. "If they do have to sell, I think there are willing bidders on this side of the pond who can take on that risk."
Analysts pointed out unrest in the Middle East and North Africa could continue to drive investors into safe-haven US debt. Although Saudi government officials squelched a day of planned protests in the country, fighting continued between government forces and rebels in Libya and pro-democracy activists repeated calls for more demonstrations in other countries.