Bonds 01 (May 08 - Aug 10)

[LenaHuat]

PIMCO's Gross is wondering who will be around to pick up treasuries : (Fr CNBC)

Addressing the surging yields in government debt that have caused some to worry about inflationary pressures, Gross says foreign nations such as China cannot be counted on to fill orders for the $2 trillion or so in bonds the government will be auctioning off this year while buying only $300 billion or $400 billion.

"That's a big gap to fill," Gross said in a live interview from a Morningstar investment conference. "It's too big of a gap for the Chinese to fill, so that has to be filled by the Pimcos of the world and by the individual savers."

He said the government will have to keep yields at between 3.7 percent and 4 percent to provide investors with enough incentive to buy bonds instead of stocks or other asset classes

[kennynah]

maybe James Bonds....

.........

[LenaHuat]

Ah....the Bonds, I like Timothy best but his career was really short

[kennynah]

as for me...i have always preferred Sean Connery...I thought he has the most unique enunciation...i guess it's his scottish ancestry...

i;ve been awaiting for market to do a major downswing....which has not happened and i am beginning to wonder if it will anytime soon ???

what do you think my dear L ?

[LenaHuat]

Dear K

Sean Connery - Seriously speaking I have never seen any of his JB movies. But I know what U mean by the Scottish accent, I'm sure U mean his accent bears resemblance to the matronly singing sensation on "Britain's got talent" My first JB idol was Roger Moore and then my fancy turned to Timothy Dalton.

Oh, dear....afraid U've got to wait long long for major downswing. I've been positive abt the stock markets since I posted this in the thread "Averaging Up on Winning positions" on 24 March 2009. But I recall a week or so b4 this date I hve already posted something optimistic.

http://wookup.com/finance/forum/viewtopic.php?f=16&t=1344&p=46730&hilit=rally+legs#p46730

But Nourini could be right about a possibility of a serious dip in the US economy next year. This is when the govt stimulus progs run their courses and the private sector failed to pick up steam.

[LenaHuat]

Forgot to add this remark : The one time I thought this fantastic rally would falter was when the H1N1 flu broke out. I was on "GET SET" mode to sell into strength but never got off

As usual, we set our eyes on the horizon watching out for either dark or no clouds. I think the next danger time-zone might be early autumn, when cool weather could add impetus to the H1N1 virus' infection prog.

[winston]

THE BIGGEST PROBLEM IN THE WORLD by Brian Hunt, Daily Wealth

Our chart of the week is the U.S. government's worst nightmare. It shows the uptrend in the cost of borrowing money.

As we've mentioned many times in the past few months, we expect the government's "bailouts for everyone" policy to produce inflation. This theory is market-approved... as shown by the declining dollar and soaring gold stocks.

Another picture of inflation at work: The interest rate on 10-year government bonds is soaring right now. This week, the rate jumped to its highest level since November 2008. Uncle Sam's creditors are getting worried... and we are entering dangerous times.

[millionairemind]

Published June 5, 2009

BOJ warns that bond markets will not finance govt debt

By ANTHONY ROWLEY
IN TOKYO

BANK of Japan (BOJ) governor Masaaki Shirakawa yesterday joined US Federal Reserve chairman Ben Bernanke in warning about the growing danger of bond markets rebelling against financing the huge debts that leading governments are running up as they launch recession-countering fiscal stimulus packages.

Mr Shirakawa also echoed Mr Bernanke's insistence that central banks must not be pressurised by governments to 'monetise' public debt through purchases of government bonds.

The unusually explicit warnings by the central bank chiefs of the world's two top economies come as long-term bond yields in the US, Japan and elsewhere have been rising sharply, suggesting that markets may be losing their appetite to digest ever-increasing volumes of government debt.

The yield on the benchmark 10-year Japanese government bond hit a high of 1.55 per cent this week, while that on the equivalent US Treasury bond climbed to near 3.7 per cent.

While equity markets have staged a strong recovery in recent months, bond markets have moved in the opposite direction, indicating possible trouble ahead, analysts said.

Mr Shirakawa told the Japanese parliament the BOJ cannot afford to be seen to aim its policy at aiding Japan's public finances by buying larger volumes of government debt. Mr Bernanke was more explicit when he declared on Wednesday that 'the Federal Reserve will not monetise (US government) debt'.

Mr Shirakawa said yesterday: 'If doubts grow over our management of fiscal and monetary policy - in other words, if policies are seen as being targeted at short-term needs rather than long-term stability - a certain premium will be added to long-term interest rates.'

BOJ has stepped up its purchases of Japanese government bonds by about half in recent months as it has sought to help counter the impact of the recession. Japanese government officials frequently urge BOJ to do more to help the economy - shorthand for urging it to buy more government debt.

The US and Japanese governments have each launched major fiscal stimulus packages aimed at countering the global economic recession.

While financial markets initially welcomed these, the impact on government debt markets is now uppermost in their mind. Concerns are less marked in continental Europe, where fiscal stimulus has been less heavy.

Bond market analysts said that there is a danger of some governments falling into a 'debt trap' - they are forced to issue greater volumes of bonds simply to pay rising debt service costs.

Japan, where - according to the OECD - the ratio of outstanding government debt to gross domestic product (GDP) is set to approach 200 per cent, is already in this trap, analysts said. And with fast-rising levels of debt, the US and Britain are perceived to be in danger.

Hidetoshi Kamezaki, a member of BOJ's policy board, warned this week that huge government bond issues to finance fiscal stimulus around the world could push up interest rates sharply.

The Council on Economic and Fiscal Policy, a part-public part-private sector advisory body, this week urged the Japanese government to reduce its ratio of outstanding debt to GDP over the next 10 years.

It also said that the current official target of restoring a primary balance on the government budget by the end of fiscal 2011 is probably impossible.

[LenaHuat]

There seems to be a contradiction here. On one hand, the central banks are :

Mr Shirakawa told the Japanese parliament the BOJ cannot afford to be seen to aim its policy at aiding Japan's public finances by buying larger volumes of government debt. Mr Bernanke was more explicit when he declared on Wednesday that 'the Federal Reserve will not monetise (US government) debt'.

On the other hand, the central banks are quoted to be :

Bond market analysts said that there is a danger of some governments falling into a 'debt trap' - they are forced to issue greater volumes of bonds simply to pay rising debt service costs.

At the end of the day, did they 'issue' more or 'buy back'??
Jim Rogers said on CNBCTV this early morning, at 0100, that he was 'short' bonds. IMHO, that's what is happening to the bond market. And hence feeding the equity markets. If strong investors lose their appetite for bonds by making fundamental asset re-allocations of their portfolio mandates, then when corporate earnings improve at the next reporting season, equities will have a good further upswing. If corporate earnings don't pick up steam, this rally could juz be on a plateau for a few months.

[winston]

1) If strong investors lose their appetite for bonds by making fundamental asset re-allocations of their portfolio mandates, then when corporate earnings improve at the next reporting season, equities will have a good further upswing.
2) If corporate earnings do pick up steam, this rally could juz be on a plateau for a few months.

1) Yes, there could be some reallocation from Government Bonds. However, I'm not too sure that those money would be going into Equities. Maybe Corporate Bonds ? Maybe Commodities ? Maybe Distressed Assets eg. Commercial properties ? Gold ? Cash ?

2) Yes, I have been thinking when earnings would be picking up after the recession. After the AFC, it took 3 years before the market rallied on earnings. Maybe this time would be different due to the various strong stimulus programs..

As always, I enjoy your insights ! Take care, Winston