Bonds 01 (May 08 - Aug 10)

[winston]

Weekly Review:-

Bonds made a stellar recovery over the week as interest rates fell. Bond yields on Friday were slightly better with the 10 year US treasury going down a tick (3.88% versus 3.89% Thursday). Bonds recovered over this critical area, tested it on Friday, and then rebounded.

Bonds have been selling because the Fed will have to raise interest rates at some point. Indeed, Hoening, the Kansas City Fed President, said that there needs to be an immediate rate hike to 1% in order to avoid the bubble that was created the last time ratings were held down artificially for such a long period of time. 1% does not seem high, but that is a start.


Source: MarketFN.com

[winston]

ALL'S WELL… THE BOND MARKET IS SOARING

Everywhere we look, we see signs the great government "goosing" of the economy is pushing assets higher. In just the past couple months, we've profiled rising crude oil, copper, bank stocks, home-improvement stocks, and restaurant stocks to show you this trend at work.

Today, we show you a market far larger and more important than measly restaurant shares… We show you the bond market.

Seasoned investors pay close attention to the bond market… even more than the stock market. Companies are legally obligated to pay off bondholders before shareholders see a penny in dividends. So if the price of bonds is headed lower, you know there's serious trouble in the markets.

Today's chart displays the price action in HYG, one of the largest investment funds that owns corporate debt. As you can see, there's no "serious trouble" in the bond market right now. Debts are being serviced… creditors are pleased… and bond prices are near their highs for the year. Sure, the U.S. government debt problems will come home to roost, but for now, the trend in most everything is UP. It will end when it ends.


Source: Daily Wealth

[winston]

US Bonds

Bonds sold off, recovered, broke the trendline, and gapped higher today. The 10 year US treasury closed at 3.76% yield, down from 3.84%. Bonds surged higher. That is a fear trade a fear that the world economies are going to go lower.

Bonds are receiving a bid when you would not expect it with the economies of the world supposedly moving higher. Something is amiss. This is the tip, so you are having inflation factors thrown into this as well, but this is also representative of the 10 year Treasury.

The bond market is considered the gold standard for prediction of economic activity. The yield curve is still very steep and sloped in the right direction. Bonds are surging again as the economy supposedly improves, and there is something amiss with that. We will have to see what is lying in the weeds.

It was likely due in part to the SEC moving in against GS. Financials are very important to the market. If the government takes on the financial sector and tries to bring it down, we have serious problems with our economy and the stock market in particular. You see some return to the safety of bonds.

Just as investors started to get out of bonds as the stock market advanced, they reversed on them. Is that not the way it always works? Bill Gross even said we are in for a bear market in bonds, and then it reverses and breaks the trend. Very serious stuff is going on in the other markets. This has been a wild two to three weeks with respect to the other markets outside of the stock market.

The stock market has just continued higher, but the other markets are going in different directions. There is turmoil under the surface in the world with respect to economics, currency, equity, and debt. When I talk about debt, I am talking about Greece and the PIIGS. Interesting times for all of us yet again.


Source: MarketFN.com

[winston]

Morgan Stanley: 10-Year Treasury Yield Will Hit 5.5 Percent This Year By: Dan Weil

The 10-year Treasury bond yield will climb to a nine-year high of 5.5 percent by year-end, according to Morgan Stanley.

The budget deficit, which totaled $1.42 trillion last year and may rise even further this year, will cause the move, Morgan Stanley analysts say. The 10-year yield recently hit a nine-month high of 4 percent and recently was at 3.75 percent.

The budget gap forces the Treasury to issue massive amounts of bonds. Estimates for the Treasury’s bond issuance this year total $2.4 trillion.

And that supply will push bond prices lower and yields higher Jim Caron, Morgan Stanley’s head of bond strategy, told The Wall Street Journal.

"We've never seen this much Treasury supply in the history of the bond market."

But Goldman Sachs sees it differently. Its chief U.S. economist Jan Hatzius predicts the 10-year yield will slip back to 3.25 percent this year.

"Ultimately, we don't find supply to be of such great predictive power regarding what happens to interest rates," Hatzius told The Journal.

His thinking it that record government borrowing is merely a substitute for private borrowing, which is sluggish.

The economy is weak enough to keep inflation from surging, which also will keep interest rates from surging, Goldman maintains.

BlackRock, the world’s biggest money manager, sides with Goldman.

“We’re more comfortable owning longer Treasuries,” BlackRock managing director Stuart Spodek told Bloomberg. “There isn’t inflation in the pipeline.” He’s also attracted by the steep yield curve.

http://moneynews.com/StreetTalk/MorganS ... /id/356447

[kennynah]

what are the chances that Mr Chow will be the next

James Bond ?

[millionairemind]

Bond Traders Declare Inflation Dead as Yields Below 2008 Levels
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By Daniel Kruger

April 26 (Bloomberg) -- The bond vigilantes who punished governments for profligate spending in past years have gone into hiding.

Sovereign bonds yield an average 2.385 percent, about the same as a year ago and below the average of 3.08 percent in 2008, when the credit market seizure led investors to seek the safety of government debt, according to Bank of America Merrill Lynch index data. The cost to borrow is steady even though the amount of bonds in the index that includes nations from the U.S. to the Germany and Japan has grown to $17.4 trillion from $13.4 trillion two years ago.
http://www.bloomberg.com/apps/news?pid= ... gOyw&pos=3

[winston]

Weekly Review

Bonds in the US finished weaker; in other words, they sold and pushed yields higher (US 10 year 3.82% versus 3.77% Thursday.) Bonds surged in the US off this low based upon the weakness building in Greece. It came out this week when the Greek bond market imploded and yields surged and their bond curve inverted.

That means the short end including the 2 year note held a higher yield than the long end. In other words, money had no value down the road in Greece because they thought things would get worse. That inversion is a sign of economic recession at the least.

The government came to its senses and thought it better get money now before things get out of hand. That helped ease some of the pressure on the US dollar because everyone said at least the IMF is in there now and will help. We will see. Our bond market tells us the story is not over because bonds rallied off their lows on Friday.

We know there are still skeptics in the bonds market, and you can see that when looking at the pattern. Bonds were also hit because at least half of the FOMC members think it is time for the Fed to start selling its $1.25T in mortgage-related assets. It is time to start clearing the books. It may not be the same thing as tightening, but it has that effect as it tends to drive rates higher because it makes what they are holding worth less.

Bonds struggled and sold and yields rallied in the US on Friday for those two reasons: the IMF going into Greece, and more indication that the US Fed will embark on a tighter money policy. That has to happen, and it is one of the reasons bonds have been trending lower since December. The rally over the last few weeks was due almost directly to worries of failure in Greece. We will see if that changes now that the IMF is in.

It also didn't hurt that Russia had a successful bonds auction for the first time in about ten years. Iceland had its credit rating increased by Moody's. Iceland was one of the first banking systems to collapsed, and the raised credit rating may help. You cannot help but think that maybe Moody's was feeling sorry for Iceland due to the volcano. It was raised, but no one takes much stock in credit rating agencies right now.

Source: MarketFN.com

[winston]

Weekly Review

Bonds are so important right now because they are going through the roof. That does not mean yields. Bonds rates are surging in Europe, Greece, Spain, Italy, and Portugal. Here in the US, bonds are surging and driving rates lower.

This week the 2 year Greek bond hit 15% and on Thursday it fell back to 13%. On Friday it was bouncing back up. Yields are high because no one has any confidence in the government. They demand more and more interest in order to compensate the risk they are taking on.

Of course no one is buying Greek bonds -- it is very illiquid. No one wants them, and that is how inflation takes off and hyperinflation kicks in. They have to price these to get someone to buy them, and they take off to the upside.

US bonds are rallying, pushing yields lower. Yields made it up almost to 3.8% again this week. They closed at 3.74% on the 10 year Thursday. The 10 year closed at 3.66% on Friday. Money is flying into US bonds for safety. There is a trend break and then an explosion higher. It has taken out a lower high in February, and now it is taking aim on the December peak that started this downtrend.

Things should be recovering and US rates should be rising. There is something very, very wrong. Our bonds are flying off the shelves; people are pouring money into them when our economy is supposedly recovering as well as the rest of the economy. Why?

This is similar to 2000 when there were drought conditions in the US impacting produce and grain prices. The Fed was worried just about the consumer going crazy. There were serious issues happening that made no sense, and the Fed ended up screwing things up. Things are not making sense now, but I do not know if the Fed is necessarily involved in this.

The Fed is trying to keep rates low, but this is not what it intended. It is thinking it will have to start selling some of those assets it bought and raising interest rates. That should have negative impacts on our bond prices. Yet bonds are flying through the roof.

The problems in Europe are much worse that people anticipate, and our economic recovery is much too weak to offset that. That is why I am worried. I am still playing the rallies if they give it to us, but I am worried about what the future holds. That is why I talked about buying hard assets yesterday.


Source: MarketFN.com

[winston]

Weekly Review

Bonds actually sold back somewhat on Friday in the US. They spiked for about a month straight. After it broke down in early April it broke right back. The bond market in the US was telling us about the troubles in Europe. At the time it made no sense with the US economy improving and the Fed saying it would have to raise rates and otherwise end its quantitative easing.

Bonds should have been selling, but they reversed and rallied sharply. Once again, the bond market was the accurate leader for the rest of us. On Friday the US 10 year closed at 3.42%. That yield was higher than 3.39% on Thursday, and that means t bonds sold.

Bonds went from 3.8% into 3.3% in the blink of an eye all because of these issues in Europe. Just as with the other markets, if the ECB comes out with a plan for quantitative easing over the weekend, we could see an interim relief test as the market comes back and has to test this straight upshot when bonds reversed and broke their downtrend line.


Source: MarketFN.com

[winston]

Weekly Review

US bonds were on fire as well. The 10 year was smoking on Friday (3.45% versus 3.54% Thursday). It gained strength all session because premarket it was trading at 3.48%. Bold, strong moves as US bonds continue to act as a safe haven for money. That money is fleeing from European bond markets and thus driving European bond yields higher and higher.

That is not necessarily a good thing, although if you are having a recovering economy, you typically see yields rise simply because money becomes more valuable. If you have massive debt issues and no real hope of recovering from them, interest rates tend to spike and move toward hyperinflation because the currency and everything in the country is devalued with no bright economic future. Thus we see money flowing into the US bond market when, rationally, it should be moving out of bonds.

As the US economy recovers, the Fed would be forced to raise interest rates and therefore push money out of bonds naturally if you can call any Fed action natural. That is not happening because of the fires burning over in Europe.

Source: MarketFN.com