Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

U.S. Treasury Bonds, Stay Long and Earn the Carry!

Interest-Rates / US Bonds May 17, 2010 - 08:07 AM GMT

By: Levente_Mady


Best Financial Markets Analysis ArticleThe bond market did exactly what it was supposed to do last week: it pulled back to the break-out level at 120 and then it started moving higher again.  In spite of the massive bounce in stocks on Monday, the market remains quite nervous.  The long auction cycle included a record $16 Billion 30 year bonds on Thursday.  The market received the 3 year tranche very well, the 10 years were better than average and the long bond managed to drum up enough interest to keep key support at 120 intact.  While crude oil is leading commodities to the downside, gold continues to have a remarkable bid as it moved to new all time highs near 1250 on Friday.

It is time to spend a little time on the European scene.  First and foremost, $1 Trillion bailout packages just don’t seem to have the same effect as they used to. 

After the announcement of the latest “Shock and Awe” package from an apparently united European front, the Euro currency briefly bounced a little over 3 cents to 1.31 USD/Euro before heading south for the rest of the week.  It closed at 1.2387 on Friday, breaking to its lowest level in over 4 years.  Some of the weaker sovereign credits bounced substantially along with stocks, but as per the currency market reaction, the overall effect was less than awesome.  It should be duly noted that regardless of the market reaction, this bailout program was substantially different than the ones announced over the past couple of years.  While the Americans, Brits, etc. just kept throwing money indiscriminately at their problems in the hope that they would disappear (it certainly seems that they managed to succeed for the time being), the Euro package came with some strings attached.  As a matter of fact it came with quite a few strings attached. 

We have seen a number of announcements from the most troubled countries as to how they planned to get their fiscal house in order with specific spending cuts and tax increases over the past few days.  The consequences will be massive and hopefully two fold.  If these countries succeed in getting their deficits under control, the long term benefits will be enormous.  At the same time, the draconian measures that will be taken will have an immediate and substantial negative impact on their short term growth.  I certainly hope that they succeed because I certainly don’t believe that we can solve a global debt problem with further deficit spending.

In the agencies basket case column, after Freddie Mac lost a bundle the previous week, last week it was Fannie Mae’s turn to announce that they lost about $13.6 billion during the first Quarter and only asked for another $8.9 Billion from the Treasury to be able to repeat a similarly heart warming performance next quarter.

NOTEWORTHY:  The economic calendar offered no big surprises last week.   The US Trade Deficit increased $1Billion to $40.4 Billion mostly on higher costs for oil imports.  The US Treasury recorded its first ever monthly deficit during the month of April.  Just to make sure it was a good one, the number came in at -$83 Billion.  Weekly Initial Jobless Claims dropped marginally from 448k to 444k last week.  Retail Sales were roughly in line with expectations at a 0.4% increase, however the details in the report are hinting at some weakness ahead.  Industrial production increased a solid 0.8%, which was as expected, while Capacity Utilization was up from 73.1 to 73.7% but below forecasts of 73.9%.  The Michigan Consumer Sentiment Index increased a point to 73, but remains stuck at a low absolute level.  In Canada, the Trade Surplus dropped from $1.2 to 0.2 Billion in March.  This was lower than forecast.  The only surprise I see is that we still have a surplus.  This week’s economic schedule will be highlighted by Housing data, the inflation reports and Leading Indicators for April.

INFLUENCES:  Trader sentiment surveys we follow moved in the bullish direction again.  On a scale of 0-10, the surveys are at 6.0, which is moving in the right direction for the bulls but it is far from overbought to help the bears.  The Commitment of Traders report showed that Commercial traders were net long 394k 10 year Treasury Note futures equivalents – an decrease of 36k on the week.  This metric is still supportive.  Seasonal influences are diminishingly negative through May.  The technical picture is positive as the bond futures convincingly broke through the upside of the recent 114 -120 trading range two weeks ago and then it managed to test the break-out and successfully bounce from there.  Next resistance level is at 124 to 124.5 on the bond futures and nothing but daylight if we get through that.

RATES:  The US Long Bond future was nearly unchanged at 122-01, while the yield on the US 10-year note increased 2 basis points to 3.44% last week.  The Canadian 10 year yield decreased 6 basis points to 3.44%.  The Canada-US 10 year spread paused from moving in the US market’s favour.  The US 10 year yield is trading even with the Canadian 10 Year yield as the Treasury yield underperformed by 8 basis points relative to its Canadian counterpart.  The US yield curve was 6 basis points steeper with the difference between the 2 year and 10 year Treasury yield now at 266.

BOTTOM LINE:  Bond yields were pretty much unchanged through most maturities last week, while the yield curve tilted slightly steeper.  The fundamental backdrop remains supportive.  Trader sentiment is moving in the positive direction; support provided by the Commitment of Traders data is positive while seasonal influences are somewhat negative.  Based on this and the positive technical set up, we will be looking to buy into weakness during the rest of May.  Stay long and earn the carry!

By Levente Mady

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.

© 2010 Levente Mady, All Rights Reserved

Levente Mady Archive

© 2005-2018 - 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

6 Critical Money Making Rules