Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Treasury Bond Market Kept Positive by Friendly Inflation Data

Interest-Rates / US Bonds Aug 24, 2009 - 08:43 AM GMT

By: Levente_Mady

Interest-Rates

The bond market ended flat after spending most of the time trying to move up last week.  Friendly inflation data and a confirmation of solid international demand kept the market in positive territory for most of the week.


We can have a debate about how inflation should be best measured and all the monkey business that is going on with the government manipulating the numbers, but I will just try to ignore that discussion for the time being.  I will just pretend that the statistics are what they are and as per the latest CPI data inflation stands at -2.1% year over year.  Using that data puts the real 30 year Treasury yield at very close to 6.5% - which is the highest it has been in close to 3 decades.  There are 2 key observations that I would like to make here: 1, the historically high (and increasing) real yields are reflecting the deteriorating credit quality of Treasury bonds and 2, these extremely high real yields are not something the doctor ordered to help the recovery rolling.  It is a catch-22: the more stimulus, the higher the real Treasury yield will rise, which will further impede any kind of lasting recovery.

On the bank shutdowns front, the authorities just continue to wield the big ax.  I am not exactly sure where the count is exactly – I believe it was last seen at 81 – but there seems to be no slowing down on this front.  Another 4-5 banks were euthanized last week.  One big problem with the trend is that these stinky dead fish floating down the river are just getting larger and larger.  One has to wonder how long before the good folks at the Federal Depositary Insurance Corp will be asking the government for many more billions in funding in order to be able to continue to guarantee the depositors’ funds in these institutions as to avoid a banking panic.

On second check the experts that were discussing the Fed preparing to pare back their asset purchases supporting the credit markets did not turn out to be quite right.  While the Fed did announce that they plan to wind up their Treasury Bond purchasing program by October at their last policy meeting, they followed it up with also announcing that they will continue to support the Asset Backed Securities portion of the Fixed Income market.  As per last week’s comments, it certainly appears that for the time being the Treasury market is managing to hold up in decent fashion even without ongoing Fed support.  Last week’s international funds flows report certainly confirmed what we saw from the recent Treasury Note and Bond auctions: international investors – both Central Banks and others as well – continue to be massive buyers of Treasuries.

NOTEWORTHY:  The economic calendar was mixed last week.  Manufacturing surveys from NY state and Philadelphia area turned positive, suggesting an above 50 reading on the National ISM Manufacturing survey due out in a week and a couple of days.  On the housing front Housing Starts and Building Permits declined and missed expectations while Existing Home Sales surged over 7% and bettered expectations.  The inflation data in the US remains tame on most fronts.  Last week’s PPI report showed that Prices at the Wholesale level declined a much larger than expected 0.9% in July. 

The core component also declined by a lesser 0.1% as the experts looked for a small increase on that front.  Weekly Initial Jobless Claims increased 15k from 561k to 576k last week.  Leading Economic Indicators increased by 0.6% - the fourth consecutive month of a positive reading.  In Canada, the Consumer Price Index fell 0.3% in July for a 12 moth decline of 0.9%.  This is the lowest reading in this data series since the 1950s.  Core inflation was flat last month while the annual figure slid from 1.9 to 1.8% and it will likely continue to decline.  This is another ongoing supportive influence for the bond market.  This week’s schedule will be highlighted by consumer sentiment survey, personal income and spending data as well as more Housing Data in the form of New Home Sales, the Durable Goods Orders report as well as the revisions to the preliminary Q2 GDP report.

INFLUENCES:  Trader sentiment surveys became more bullish last week.  On a scale of 1-10, the surveys I follow are near 4.5 – which is solid neutral territory.  I expect sentiment to be somewhat supportive going forward as there is plenty of room to rise before this metric becomes overdone.  The Commitment of Traders reports showed that Commercial traders were net long 437k 10 year Treasury Note futures equivalents – a slight decrease of 4k from last week.  This is positive.  Seasonal influences are positive right through September.  The technical picture is neutral as bonds remain in a trading range.  Last week we tested the upper end of the recent range, but managed to slide back on Friday.  I expect that we should get some follow through to higher prices in the long bond during the weeks ahead.

RATES:  The US Long Bond future was essentially unchanged at 118-26, while the yield on the US 10-year note increased 1 basis point to 3.57% last week.  The Canadian 10 year yield was also steady at 3.48%.  The Canada-US 10 year spread increased 1 basis point to 9.  The US yield curve was flatter as the difference between the 2 year and 10 year Treasury yield decreased 2 basis points to 248. 

BOTTOM LINE:  Bond yields were little changed last week, while the yield curve became slightly flatter.  The fundamental backdrop remains weak, which is supportive for bonds.  Trader sentiment is moving up to neutral – which is somewhat positive; Commitment of Traders positions are supportive and seasonal influences are bullish.  I recommend keeping the long bonds that were purchased back in June.

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

© 2005-2022 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