Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

U.S. Treasury Bond Market Jolted by Panic Mode Quantitative Easing

Interest-Rates / US Bonds Mar 23, 2009 - 12:18 AM GMT

By: Levente_Mady

Interest-Rates Best Financial Markets Analysis ArticleThe bond market was jolted up by the “surprise” (not entirely for the readers of this column) announcement that the Fed will be buying not only additional boatloads of Mortgage Backed Securities and Agency bonds, but also up to $300 Billion Treasury paper during the next 6 months in order to keep a lid on interest rates for the foreseeable future. As previously discussed, the Fed has already taken the Fed Funds Rate down to zero, so they are “all in” on that front. Now they opened a new kettle of fish by joining the Bank of England and the Bank of Japan in what is called Quantitative Easing – i.e. purchasing Treasury bonds in the Fed's case.

I did not feel that this was a big surprise, because of the way Chairman – I Can Walk On Water – Bernanke has approached this crisis thus far – i.e. shoot first and ask questions later, or when in doubt err on the side of doing too much. Before I move on, I believe that is very important that we pay way more attention to what central banks are doing as opposed to what they are saying. We have Bernanke, Carney and various others talking out of the side of their mouths telling us that (not just any, but) a strong recovery is just around the corner, while they continue to press panic button after panic button by having eased aggressively and now embarking on quantitative easing as a next step of their liquidity pumping activities. These guys are in panic mode and certainly acting like they can't see the light at the end of the tunnel. They have tried a number of drastic measures, and nothing has worked thus far, so they continue to act like they have an unlimited arsenal to save the world. Admitting defeat is not an option. Re-inflating the credit bubble that has burst is the only way to glory. There is too much debt out there, but reducing it is not an option. Let's give that drunken sailor another bottle of rum. The big question mark is how many more bottles does it take before we kill the sailor?

I must admit that while I was expecting the FOMC to announce Treasury note purchases in some shape or form, I was surprised at the sudden tremendous move in the Treasury market. The Long bond futures had their largest daily range on record – just a tad over 9 points. The market has given back close to 4 points from the highs. Volume on the futures was only slightly higher than average. The market reaction leads me to believe that this was a very sharp jolt but not anywhere a knockout punch for the bears. While I feel much more confident that the line in the sand has been drawn for massive support for the bond market (Long live the Bernanke Put!), I don't expect that the highs from the turn of the year will be challenged any time soon.

NOTEWORTHY: The economic data was mixed again last week. The week started with a disappointing Empire State Manufacturing survey that dropped 4 points to -38, followed by weak Capacity Utilization – down 1 point to 70.9% - and Industrial Production – a decline of another 1.4%. Building Permits and Housing Starts showed strong gains in February – they were up 3 and 22% respectively, albeit from extremely depressed levels. The inflation data was a snick higher than expected, with core CPI and PPI both rising 0.2% last month. The US Current Account Deficit is imploding in step with the Trade Deficit – it fell close to $50 Billion in the last Quarter of 2008, to a 5 year low of $132 Billion. Wee kly Jobless Claims drifted down 12k to 646k. Leading Economic Indicators fell 0.4% in February and the previous month's increase was revised down from +0.4 to 0.1%. This forward looking indicator does not forecast an imminent recovery yet.

The Philadelphia Fed Manufacturing survey moved up 6 points to a still dismal -35. The Canadian economic data was better than expected but far from good. Retail Sales increased 1.9% in January after a 5.2% decline in December. The year over year figure stands at -5.8%. Canadian CPI jumped 0.7% overall and 0.5% on the core measure. However, the annual inflation measure stands at 1.4% on the headline and 1.9% on the core. This is a good news – bad news story depending on how you care to view it. It is good news from a non-deflationary perspective, but bad news that in spite of a severe economic slowdown, inflation remains sticky. Inflation is definitely a lagging indicator, so I suspect that these data series will be under pressure going forward. Next week's schedule will be highlighted more housing data as well as Durable Goods orders, the final Q4 GDP data, Personal Income and Spending and the Michigan Consumer Sentiment survey.

INFLUENCES: Trader sentiment surveys remained stuck in neutral territory. The Commitment of Traders reports showed that Commercial traders were net long 368k 10 year Treasury Note futures equivalents – a decrease of 25k from a week ago. This is supportive for bonds. Seasonal influences are negative. The technical picture is damaged as the market managed to stabilize. 124 remains the line in the sand for support on the bond future. This key support managed to hold so far, and I expect it to hold for a while.

RATES: The US Long Bond future traded up 3 points to 129-07, while the yield on the US 10-year note decreased 24 basis points to 2.65%. The Canadian 10 year yield decreased 12 basis points to 2.75%. The US yield curve was flatter as the difference between the 2 year and 10 year Treasury yield decreased 16 basis points to 193.

BOTTOM LINE: Bond yields dropped lower, while the yield curve was flatter last week. The fundamental backdrop remains weak, which is supportive for bonds. Trader sentiment is neutral; Commitment of Traders positions are supportive and seasonal influences are negative. My bond market view is neutral.

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.

© 2009 Levente Mady, All Rights Reserved

Levente Mady Archive

© 2005-2019 - 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