Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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

© 2005-2014 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

Free Report - Financial Markets 2014