Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Consensus Forming: China Heading Back Into Financial Crisis - 30th Apr 16
The Next Technical Price Targets for Gold & Silver - 30th Apr 16
Stock Market Downtrend Should be Underway - 30th Apr 16
Gold And Silver – A Clarion Alarm Call For All Paper Assets - 30th Apr 16
US Economic Statistics LIES, LIES AND OMG, MORE LIES - 30th Apr 16
Stock Market Strong Elliott Wave Relationship is Developing - 29th Apr 16
Fed's Kaplan: Brexit to Factor in US June Interest Rate Decision - 29th Apr 16
Silver Miners Strong in Grim Q4 - 29th Apr 16
Is Silver a better bet than Gold in the Near Future? - 29th Apr 16
How to Use the CoT Report in Gold Investing? - 29th Apr 16
Sri Lanka is Intriguing: Areas to Consider for Value Investing - 29th Apr 16
Gold “Chart of The Decade” – Maths Suggest $10,000 Per Ounce Says Rickards - 29th Apr 16
Are We or Are We Not in a New Gold Bull Market? - 29th Apr 16
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16
Gold Price Target is $3,000 and Silver is $75 per Ounce - 25th Apr 16
Parameters for a Stock Market Sell Signal-in-the-making - 25th Apr 16
Stock Market Dangerous Divergence - 25th Apr 16
Gold Miners Nub is the Sweat of the Sun - 24th Apr 16
US Dollar Price Forecast - 24th Apr 16
Stock Market Upside Objective Reached - 24th Apr 16
Why Leftist Greeks have more reasons than Liberals to favour Entrepreneurship and Support Entrepreneurs - 24th Apr 16
The Dow Jones is a Catalyst for Misplaced Stock Market Optimism - 24th Apr 16
Why Russia Harasses U.S. Aircraft and Ships - 24th Apr 16
Stocks Bull or Bear Market Rally? - 23rd Apr 16
A Bright Future for Solar Power in the Middle East - 23rd Apr 16
Silver Commitments of Traders – Halloween is Arriving Early This Year - 23rd Apr 16
Good News, Bad News, Both Favor Gold And Silver - 23rd Apr 16
Mish's Sure Fire Proposal to End Japanese Deflation - 23rd Apr 16
Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?” - 23rd Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

Bearish Trader Sentiment Bullish for Bonds

Interest-Rates / US Bonds Jun 22, 2009 - 01:19 AM GMT

By: Levente_Mady

Interest-Rates The bond market started the week with a decent tone but it pulled back on Thursday as the Treasury announced the details of next week’s bond auctions. In spite of the pull-back, the Long bond managed to eke out a small gain for the second week in a row. Real rates in the long end remain on an increasing trend as CPI declined from -.7 to -1.3% year over year through May causing the real long bond yield to close in on 6%. 


I cannot emphasize enough the detrimental effect that rising real rates will have on economic activity.  With the Fed Funds Rate already at 0 and longer dated bonds under pressure, the effect of Quantitative Easing has been negligible thus far.  I am certain this topic will be a point of focus at the Federal Reserve Bank’s policy setting Open Market Committee (FOMC) meeting next week.  With unemployment still rising and inflation deflating I expect no action on the interest rate front from the Fedsters. 

Treasury supply is an ongoing theme in the market these days.  Next week will be no different.  On tap will be another $100 Billion+ 2-5-7 year notes scheduled for auctions on Tuesday through Thursday.  While supply may put a lid on the market for the early part of the week, it is a known factor and the market has now factored in several Trillions of dollars of new issue notes and bonds for this year.  In other words, it is front page news; it has been front page news for months now and it is pretty much fully discounted for that reason.

Meanwhile in the real world, we had 3 more banks shut down by the authorities this weekend.  That takes the count up to 40 and counting for this year.  While the authorities managed to prevent a financial meltdown, everything is obviously not well in the world.  The record debt burden is not going anywhere.  As a matter of fact, it continues to grow.  Total debt (individual + corporate + government) in the US is closing in on 400% of GDP.  Previous to this debt cycle, the highest the debt to GDP ratio got was 250%.  Interest rates have hit rock bottom and Quantitative Easing is not addressing basic fundamental problems such as debt burdens, consumers losing their jobs and industrial production declines.  The deleveraging has certainly started in the private sector.  However, debt is not just disappearing; it is getting transferred from the private sector to the government’s books.  Eventually it will be the private sector that ends up paying for that debt. 

NOTEWORTHY:  The economic calendar was a mixed bag last week.  The New York Manufacturers’ Survey hinted at further slowing, while the Philadelphia Fed’s Manufacturing Survey improved by a whopping 20 points to a still negative -2 reading.  Housing Starts jumped 17% and Building Permits increased 5% in May.  On the other hand, homebuilders’ confidence declined a point to a dismal 15 for the same period.  I suppose they – the builder’s – are out there building them, I am just not quite sure how many folks are lining up to buy them…  The inflation data was lower than expected as the year over year figures continue to plunge further into negative territory.  As per the comment above, CPI is declining at a 1.3% rate, while PPI is dropping 4.5% over the same time frame. 

The news was all bad on the industrial front.  Industrial Production declined a worse than expected 1.1%.  The streak of declines is at 7 months on this front – with only one lone positive reading since the beginning of 2008.  Capacity Utilization continues to set record lows – the latest one at 68.3%.  Weekly Initial Jobless Claims ticked up 3k to 608k, while Continued Benefits dropped a substantial 148k to 6.69 Million.  Leading Economic Indicators improved 1.2% for the second consecutive month.  In Canada, the inflation picture is similar to the US.  Canadian CPI increased 0.2% in May as the 12 month figure dropped to essentially unchanged.  Canadian Retail Sales fell 0.8% in April, leaving the annual decline at 6.2%.  That is not good news for the economy.  This week’s schedule will include housing data as well as the Durable Goods report and new information on Personal Income and Spending.

INFLUENCES:  Trader sentiment surveys stayed in bear territory this week.  This is supportive from a contrarian perspective.  The Commitment of Traders reports showed that Commercial traders were net long 336k 10 year Treasury Note futures equivalents – an increase of 25k from last week.  This is still somewhat positive.  Seasonal influences are neutral this week before turning positive into month end.  The technical picture is improving as bonds are working on forming a bottom.  The 10 Year Note yield held the 4% level from the previous week, but ran into trouble as it tried to bounce.  We should get some follow through to higher prices during the weeks ahead.

RATES:  The US Long Bond future moved up a half point to 114-27, while the yield on the US 10-year note decreased 1 basis point to 3.78% during the past week.  The Canadian 10 year yield was 1 basis point higher at 3.51%.  The Canada-US 10 year spread shrank 2 basis points to 27.  The US yield curve was stable as the difference between the 2 year and 10 year Treasury yield increased 5 basis points to 258. 

BOTTOM LINE:  Bond yields declined a touch last week, while the yield curve was slightly steeper.  The fundamental backdrop remains weak, which is supportive for bonds.  Trader sentiment moved further into bearish territory – which is positive; Commitment of Traders positions are slightly supportive and seasonal influences are bullish.  I recommend keeping the long bonds that were purchased the other week.

By Levente Mady
lmady@mfglobal.com
www.mfglobal.ca

The data and comments provided above are for information purposes only and must not be construed as an indication or guarantee of any kind of what the future performance of the concerned markets will be. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable.  Futures and Forex trading involves a substantial risk of loss and is not suitable for all investors.  Please carefully consider your financial condition prior to making any investments.

MF Global Canada Co. is a member of the Canadian Investor Protection Fund.

© 2009 Levente Mady, All Rights Reserved

Levente Mady Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife