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Apr-26-2008Dissipating Bonds Of Fear(topic overview)
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The flow of new supply into the secondary market sent prices of already outstanding notes and bonds slightly lower. Trading nonetheless had a more upbeat tone than during the previous few sessions, when government debt fell on expectations that the Federal Reserve would put its string of interest rate cuts on hold after its meeting next week. The central bank has already noted that inflation is among its concerns, and many analysts have warned that further rate cuts would accelerate inflation and devalue the dollar. "We think the Fed will sensibly start to turn its attention to fighting inflation," said Joseph Balestrino, a senior portfolio manager with Federated Investors. [1] NEW YORK (AP) — Treasury prices extended their decline Friday as investors bet that the Federal Reserve will indicate next week it plans to end its campaign of interest rate cuts. The central bank is widely expected to cut rates by a quarter percentage point at its policy meeting on Wednesday.[2]
TOKYO, April 25 (Reuters) - U.S. Treasury prices fell and the two-year yield hit a three-month high in Asia on Friday, hurt by doubts about whether the Federal Reserve will cut interest rates next week and a plunge in Japanese government bonds.[3] The inflation worry came from across the Pacific on news that Japanese annual inflation hit a decade high of 1.2 percent in March on soaring energy costs, punishing Japanese and euro zone government bonds, while Treasuries followed suit. The sell-off came as investors had already been curtailing bets on Federal Reserve Rate cuts and in the wake of government Treasury auctions this week that have weighed down the market. "It seems to be one of those situations where the whole market is looking for some reason to trade off.[4] Yields on Japanese government bonds due in five years rose the most since 1999 after consumer prices surged 1.2 percent in March from a year earlier. Two-year U.S. Treasury notes are poised for the biggest back-to-back weekly decline since November 2001 as traders add to bets the Federal Reserve will stop cutting borrowing costs after its April 30 meeting.[5]
Even the U.S. market is talking about Japanese inflation," said Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co in New York. In earlier overseas trade, two-year yields rose above 2.50 percent, their highest since the middle of January. Short-dated Treasuries are currently on track for their worst month in more than two decades, based on JPMorgan's government bond index of 1 to 3-year maturities.[4] The two-year U.S. Treasury note yield rose 4 basis points to 2.44 percent in New York, after earlier climbing to a three-month high, according to bond broker BGCantor Market Data. It has risen 68 basis points in the last two weeks.[5]
NEW YORK, April 24 (Reuters) - Foreign central banks were net sellers of U.S. Treasury securities, but were net buyers of U.S. federal agency debt in the latest week, Federal Reserve data showed on Thursday. The Fed said its holdings of Treasury and agency debt kept for overseas central banks rose $2.29 billion in the week ended April 23, to stand at a total of $2.25 trillion.[6] NEW YORK, April 24 (Reuters) - U.S. Treasury debt prices tumbled on Thursday as data showing signs of the economy's resilience supported expectations that the Federal Reserve will scale back on aggressive interest-rate cuts.[7]
NEW YORK (Reuters) - U.S. government bond prices fell on Thursday, pushing yields on short-dated paper to their highest in three months, after data showing signs of resilience in the economy fueled doubts over future Fed rate cuts.[8] Bonds have been under pressure as investors question whether the Fed can risk easing monetary policy much further amid the surge in global food and energy prices. Two-year Treasury yields stayed near three-month highs as a slew of government bond offerings this week added a bearish tone to the market, with the largest-ever auction of two-year notes due later on Wednesday. "Shorter-dated bonds have been sold on fading expectations for more Fed rate cuts, and concern about rising commodities prices has added fuel to their moves," said Yoshio Takahashi, a bond strategist at Barclays Capital Japan.[9] Uncle Sam'''s auction of $19 billion in five-year notes on Thursday attracted the weakest demand since 2003. After giving a relatively healthy reception to the Treasury'''s record sale of $30 billion in two-year notes on Wednesday, investors fell back into their pattern of the last five weeks -- which has been to dump government bonds in favor of other securities. That pattern is continuing today.[10]
Treasuries have lost investors 2.1 percent since the end of March, and are on course for the first monthly decline since June, according to indexes compiled by Merrill Lynch & Co. A government five-year note auction yesterday drew the weakest demand since 2003. Treasuries rallied for the first three months of this year, with two-year yields dropping 147 basis points, as writedowns and credit losses tied to mortgage defaults reached more than $290 billion at banks and securities firms worldwide, feeding demand for the relative safety of government debt.[11] The odds of a steeper half-point cut are zero, compared with 28 percent a month ago. Treasuries rallied for the first three months of this year, with two-year yields dropping 147 basis points, as writedowns and credit losses tied to mortgage defaults totaled more than $290 billion since the start of 2007, feeding demand for the relative safety of government debt.[12]
The losses pushed the securities' yield above the Fed's target rate for overnight loans between banks, currently 2.25 percent, by the most since 2006. JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. today changed their forecasts for the Fed's April 30 decision to a quarter-point cut, from a half-point reduction predicted earlier. The Fed will hold its benchmark rate steady at the four meetings after this month's and then cut rates by a quarter- percentage point at the December, January and March 2009 meetings, New York-based Lehman said in a research note. As two-year Treasuries fell, their yields rose to within 1.43 percentage points of 10-year note yields, the narrowest gap since Jan. 29.[13] The Fed has reduced the benchmark rate from 5.25 percent since September to stoke the economy amid the worst housing recession in a quarter-century. As two-year Treasuries fell more than longer maturities, their yields rose to within 1.45 percentage points of 10-year note yields, the narrowest gap since Jan. 29.[14]
The five-year T-note yield is up to 3.18% in midday trading, compared with 2.9% a week ago and its recent low of 2.2% on March 17. Part of what'''s going on is a market reassessment of how many more cuts the Federal Reserve is likely to make in its benchmark short-term rate. Fed policymakers are expected to shave their rate to 2% from 2.25% when they meet next week. They could signal at that point a desire to pause for a while, given food and energy inflation pressures. Another market shift pushing Treasury yields higher is a lessening of investors''' fear level about the economy and the financial system, after the panic of last month. That says something.[10] U.S. sales declined for the fifth consecutive month in March, dropping by 8.5% to 526k, much lower than the 580k level expected by economists and declining to the lowest level since October 1991. In Thursday's Wall Street Journal, noted Fed watcher Greg Ip said, "The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week - but then may be ready for a breather."[15] Add Wolfgang Münchau to the list of inflation hawks. If the Fed ignores inflation while putting out more urgent fires in the financial markets, he says, "the U.S. bond market would implode, the current account deficit would become impossible to finance, the dollar would collapse, inflation would rise even more and the Federal Reserve would have to raise interest rates to high single digits or higher". Central banks have to be worried about inflation, he says, and they have to be worried about overall inflation, not just core inflation.[16] U.S. stock index futures advanced, with Standard & Poor's 500 Index futures expiring in June adding 0.6 percent. In Japan, bonds fell after the March inflation data added to speculation the Japanese central bank will increase interest rates this year.[11] Demand for fixed-income securities also waned as stock markets rose. In Japan, bonds fell after the March inflation data added to speculation the central bank will increase interest rates this year.[12]
TOKYO/LONDON (Reuters) - Investors rushed to bet on higher interest rates on Friday, dumping bonds in the belief that leading central banks were switching from nursing economies hobbled by a credit crisis to battling inflation. The main Japanese bond futures contract suffered its biggest daily fall in five years, forcing the Tokyo Stock Exchange to call a trading halt for the first time ever.[17]
LONDON (Reuters) - Government bonds in developed economies fell on Friday after Japanese inflation hit a decade high and signs that firms are escaping the worst of the credit crisis tamed expectations for aggressive interest rate cuts. Better-than-expected first quarter earnings reports in Europe and the United States pushed world stocks up towards this week's three-month high while the dollar hit a one-month peak against major currencies after firmer U.S. labour market data.[18] Government bonds rallied as write-downs and credit losses tied to mortgage defaults totaled more than $290 billion since the start of 2007. U.S. notes ended their advance in April after the Fed cut interest rates six times and arranged lending programs to increase trading in the money markets.[5] Mortgage rates won't be going down until the Fed can get inflation under control. The Fed is likely to only cut rates by 0.25 percent at their next meeting because they are concerned about inflation, according to the Associated Press. My thought is that if they were truly concerned about inflation they wouldn'''t be dropping interest rates, even by the quarter point. Considering past actions from the Fed, I would say that inflation concerns are not at the top of their list. I'''m not sure who in their right mind is buying these mortgage backed securities anyway. I wouldn'''t touch these, or even U.S. treasuries, at this point in time. Considering that the returns they offer are barely above inflation--that is, if you believe the government???s CPI numbers are accurate (I think they are much higher than that)--they just aren'''t worth it'''but that is a post for another day.[19]
Simko said the Fed could still come back later and resume rate cuts. He expects short-term government debt will remain volatile until the central bank releases its statement Wednesday afternoon. The selloff put the most amount of pressure on 2-year notes, which have declined sharply this past week. The debt, the most sensitive to interest rate movements because of its short duration, fell 1/32 to 99 13/32 and yielded 2.42, up from 2.39 percent Thursday.[2] The yield reached as high as 2.44%, the highest since Jan. 18 and above the Fed's recommended rate for overnight lending between banks of 2.25%. Fed funds futures implied an 82% chance that the Fed will cut interest rates by 25 basis points at its regularly scheduled policy meeting next week, and an 18% chance that the Fed will not cut rates at all.[20] Just over a week ago, futures implied about a 50% chance that the Fed would cut by an aggressive 50 basis points on April 30. Bonds pared some of their losses later Thursday morning after data showing new single-family U.S. home sales slumped in March and the median sales price compared with a year ago dropped by the largest amount since 1970.[20] An unexpectedly low 342,000 people applied for U.S. jobless benefits in the latest week while a key gauge of corporate investment appetite held steady, according to a report on durable goods. This sent the price on the 30-year long bond down a full point on the day and increased the gap of the two-year yield over the Federal Reserve's main target rate to its widest since June 2006. Bond prices later bounced off their lows following a report that showed a slump in U.S. new home sales last month, but the negative tone appeared to be well established by the strong early data and a looming sale of five-year Treasuries. "That really took us to our lows. Partly because of that we saw some additional selling into the five-year auction today," he added.[8]
NEW YORK (AP) — Treasury prices fell Thursday as investors, already anticipating an end to the Federal Reserve's rate-cutting campaign, found another reason to sell government bonds when a report showed a surprising drop in unemployment claims.[21] NEW YORK, April 25 (Reuters) - U.S. government bond prices fell on Friday, pushing short-dated yields to 3-month highs, as a brighter outlook for Wall Street and nagging concerns about global inflation damaged the safe-haven appeal of Treasuries.[4] NEW YORK, April 25 (Reuters) - U.S. government bond prices eased on Friday but pulled off their lows as dour consumer sentiment and a withering stock market put a floor under safe-haven Treasuries.[22] NEW YORK, April 24 (Reuters) - The U.S. 30-year long bond fell a full point on Thursday as a strengthening stock market outlook and unexpectedly strong data dimmed the allure of safe-haven Treasuries.[23]
A recent article on Forbes website attempted to help income investors compare the merits of utility stocks and U.S. Treasury bonds. On the bad news side, the column noted that the yields on both utility shares and 10-year Treasuries are down about 50% since the beginning of 1995.[24] Mr. Rhodes, a former Merrill Lynch strategist who now is head of Boston -based Rhodes Analytics, which advises institutional investors, is hearing buying bells once again. For the first time in six months, he tells me, his models are signaling it's a go for stocks. They are now the preferred asset class versus cash and bonds. That's a sharp reversal from his findings over the past six months, which have consistently shown that bonds, notably Treasury bonds, were the place to be. His conclusion is based on a just-completed analysis of a broad brush of indicators, among them money supply, currencies, interest rates, monetary conditions, commodity prices, economics, exports, and political conditions here and abroad.[25] If interest rates rise +1%, the price of a bond with a duration of five years might fall by around 5%; but a bond with a longer duration could lose more. Shorter-duration funds are generally more appealing to long-term income investors since their returns tend to be more stable. Fortunately, there are Treasury Inflation-Protected Securities (TIPS) and the funds that hold them. TIPS are linked to the Consumer Price Index, so their value increases as consumer prices, including food and energy, rise.[26] In addition to adjusting interest rates and bank reserves, Bernanke needs to sit down with the largest banks and fixed-income investors to define simpler, more transparent loan-backed securities that bond-rating agencies can more reasonably evaluate and that fixed-income investors can purchase with confidence. Payment for the services of bond-rating agencies must be shifted from the banks, which create the bonds, to large fixed-income investors, who rely on the veracity of their assessments. Domestic demand has been weighed down in recent years by a growing trade deficit. Americans spend about 5% of what they earn on imports, which don't power purchases of U.S.-made goods and services. The economy has been propelled by consumers borrowing to spend more than they earn, and that string has run out.[27] President Bush and Treasury Secretary Henry Paulson have not even been willing to acknowledge Bernanke's observation about Chinese subsidies and do little more than talk with Asian central banks, which keep the currencies well above market-clearing values. Monetary policy, which by definition adjusts short-term interest rates and bank reserves, has little effect if banks are shut out of securities markets to convert their loans into bonds.[27] Rising interest rates in the bond market signal a change in sentiment ahead of the Federal Reserve's policy meeting next week. Until recently, the general feeling in the market seemed to be that the central bank would lower its target on overnight interbank loans to 1.75% from the current 2.25%.[28]
TOKYO, April 25 (Reuters) - U.S. two-year Treasury yields held near three-month highs in Asia on Friday as signs of the U.S. economy's resilience supported expectations that the Federal Reserve may soon take a break from cutting interest rates.[29] April 24 (Bloomberg) -- Treasuries fell, pushing two-year note yields to a three-month high, as a drop in initial jobless claims and an increase in a measure of durable-goods orders fueled bets the Federal Reserve will stop cutting interest rates.[14] April 25 (Bloomberg) -- Treasuries fell, with two-year notes headed for the biggest two-week decline since November 2001, as traders increased bets the Federal Reserve will stop cutting interest rates at its policy meeting next week.[11]
Treasury notes fell on Thursday amid signs that the Federal Reserve will soon hold off on further interest rate cuts. Get stories by e-mail on this topic.[30] Rising food prices and record-high oil near $120 per barrel have fuelled inflation jitters, prompting investors to think the Federal Reserve may not move to aggressively cut interest rates much further.[31] Next week, the U.S. Federal Reserve is likely to cut the target federal funds interest rate by one-quarter point to 2%.[27]
April 24 (Bloomberg) -- U.S. Treasuries declined as demand at the government's auction of $19 billion of five-year notes was the weakest since 2003 amid mounting speculation the Federal Reserve is closer to the end of its interest-rate cuts. The securities began their decline after government reports showed a drop in initial jobless claims and an increase in a measure of durable-goods orders, and as U.S. stocks advanced.[13] The U.S. sold a record $30 billion of two-year securities yesterday and $8 billion of five-year, inflation-linked notes the previous day. The Fed is scheduled to lend $75 billion in Treasuries today to its primary dealers at the latest auction under its Term Securities Lending Facility, intended to promote liquidity in the financing markets. U.S. government debt has lost 1.6 percent this month through April 23, according to bond indexes compiled by Merrill Lynch & Co. That compares with a gain of 0.7 percent for investment-grade corporate bonds and a gain of 0.1 percent by mortgages during the same period.[14] The Fed also auctioned $59.46 billion in super-safe Treasury securities to investment firms Thursday. The auction - the fifth of its kind - fetched bids totaling less than the $75 billion worth of securities the Fed was making available. United raises domestic ticket prices:United Airlines, the second-largest U.S. carrier, raised nearly all its domestic airfares by 3 percent to 5 percent Thursday as it struggles to cope with soaring fuel costs.[32] WASHINGTON (AP) — The Federal Reserve has auctioned $59.46 billion in super-safe Treasury securities to big investment firms, part of an ongoing effort to help strained credit markets. The auction — the fifth of its kind — was held Thursday and fetched bids totaling less than the $75 billion worth of securities the Fed was making available. That could suggest that demand for Treasuries may be moderating a bit. That might be viewed as a sign of some improvement in credit conditions, analysts said.[33]
While prices of outstanding government debt appeared little affected by the auction results, the weak demand contributed to the overall downbeat tone of trading. Government securities were also pressured amid reports that big Wall Street investment banks were curtailing their borrowing from the Federal Reserve's emergency lending program — the pullback is a sign that credit conditions might be improving.[21] Rising inflation expectations as a result of a recent surge in oil and commodity prices from rice to tin come at a time the global economy faces a U.S.-led slowdown as shock waves from the credit crisis threaten to hit consumers and corporates. Growing relief that corporate profitability is holding up and banks are making progress towards cleaning up their credit-related troubles has ignited a rally in risky assets and a sell-off in safe-haven government bonds. "There's an improvement in risk appetite, growing confidence the worst is over in the financial sector and a growing conviction the Federal Reserve is close to the end of its easing cycle.[18] The Lehman International Treasury Bond ETF (amex: BWX - news - people ) fell 1.7%, or 96 cents, to $55.66, while Lehman 7-10 Year Treasury Bond ETF (nyse: IEF - news - people ) fell 0.2%, or 12 cents, to $88.57. "There's an improvement in risk appetite, growing confidence the worst is over in the financial sector and a growing conviction the Federal Reserve is close to the end of its easing cycle.[28] Last week, the U.S. Treasury sent a questionnaire to Wall Street bond dealers who do business directly with the Federal Reserve. It asked them for their views on the size of the federal budget deficit and changes to its debt issuance calendar as borrowing needs increase.[34] Stuck with risky securities and losses by the banks in the subprime debacle, investors no longer trust the banks and bond-rating agencies paid by the banks to certify the soundness of subprime-backed securities. The financial market reforms proposed by U.S. Treasury and G7 finance ministers do little to address these basic structural problems. Federal Reserve Chairman Ben Bernanke will not find the answers to these problems in economics textbooks.[27] Investors tend to move into government securities as a safe haven when economic conditions sour, and the credit crisis has helped power the months-long rally in Treasurys. The central bank said Thursday firms averaged $22.6 billion of daily borrowing this past week, compared to $24.8 billion in the previous week. It marked the third straight week in which investment firms borrowed less from the central bank.[21] The breakdown showed overseas central banks sold $1.142 billion in Treasury debt, leaving the total at $1.33 trillion. Foreign institutions bought securities issued or guaranteed by government-sponsored agencies like Fannie Mae (FNM.N: Quote, Profile, Research ) and Freddie Mac (FRE.N: Quote, Profile, Research ), adding $3.43 billion from those holdings to stand at a total $926.1 billion. Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries.[6]
Some traders are factoring fewer rate reductions by the U.S. central bank into Treasury prices on speculation policy makers are concerned lower borrowing costs will stoke inflation, which erodes the value of the fixed payments on longer-maturity debt.[11]
The difference between the two-year note's yield and the expected funds rate had widened to about 0.75 percentage point. It started to reverse, but still held below the anticipated Fed target through the first four months of the year. It has now broken above that level, which Mr. Concalves says may hasten the exits from low-yielding Treasurys to riskier investments. It also suggests greater concern about inflation, and the low-yielding two-year note currently does not compensate investors in the case of high inflation.[35] The difference between two- and 10- year yields shrank to 1.41 percentage points, the least since Jan. 29. Futures contracts on the Chicago Board of Trade show there's a 32 percent chance the Fed will keep its target rate for overnight lending between banks at 2.25 percent on April 30, up from 2 percent odds a week ago.[11] The yield on the five-year note auctioned last month rose 15 basis points to 3.11 percent, the highest level since Jan. 11. Futures on the Chicago Board of Trade show traders see a 22 percent chance the Fed won't lower its benchmark rate at its meeting on April 30, compared with no chance a week ago.[13] Ten-year notes fell 25/32 in price to yield 3.835 percent. Futures traders are betting that the central bank will lower its benchmark rate by 25 basis points to 2 percent when it meets on April 30.[30]
The 10-year note's yield rose 10 basis points to 3.83 percent, while the rate on the 30-year bond touched the highest since March 7.[13] The yield on the 0.8 percent bond due in March 2013 advanced 17 basis points, the most since June 1999, to 1.22 percent, according to Japan Bond Trading Co., the nation's largest interdealer debt broker.[11]
What lessons does recent history offer? For starters, an investor who bought junk bonds as an asset class at the peak, i.e., at the close on March 17 is now sitting on a 4.5% return, based on the price change of iShares iBoxx High Yield ETF ( HYG ) from that date through last night's close. That's middling compared with other asset classes. The S&P; 500, for instance, has jumped 7.5% over the same period--as per the Spider ETF ( SPY ) --while U.S. bonds generally have slipped by around 80 basis points over those weeks, as measured by iShares Lehman Aggregate Bond ETF. Buying when risk premiums are high, or selling when they're low, is eminently reasonable and in the long run it may be the closest thing to a free lunch for strategic-minded investors.[36]
The U.S. economy will shrink 2.3 percent in the second quarter, which means investors should stick with bonds, David Rosenberg, Merrill Lynch's North American economist in New York, wrote in a research report yesterday. It's "still too early to move away from bonds and toward stocks,'' the report said. A Reuters/University of Michigan report today will show an index of consumer sentiment decreased to 63.2 this month, the weakest level since 1982, from 69.5 in March, according to the median forecast in a Bloomberg News survey of economists.[11] "The fact that the data is strong is giving investors the green light to sell the market into supply,'' said Tyrone Smith, managing director of the government trading desk in New York at Citigroup Global Markets, one of the 20 dealers of U.S. government securities that trade with the Fed. "People are starting to adjust to a world in which the fed funds rate is going to be falling at a slower rate if at all.''[14] "The market has been repricing itself over the last three weeks to higher yields, mainly because of supply that's coming to market,'' said Tom di Galoma, head of U.S. Treasuries trading at Jefferies & Co., a brokerage for institutional investors in New York.[14]
TOKYO, April 24 (Reuters) - U.S. Treasuries barely budged in Asia on Thursday, as investors sat on their hands before a five-year debt sale later in the day, while the market awaited weekly jobs data for clues about the key monthly employment report. The market saw a record sized two-year note auction on Wednesday meet with solid demand as yields for this maturity have risen in the last two weeks.[31] Longer dated yields could spike higher than short-dated yields if inflation rises further due to surging oil and food costs. Demand for short-dated Treasuries has surged as investors snatch up the government debt in their search for a safe haven amid the worst market in decades. "They could bring back both by this time next year," Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey, said of the possible return of one-year bills and three-year notes.[34]
NEW YORK (AP) — Treasurys finished flat to lower on Wednesday as investors sold in response to government debt auctions this week and a surge in stock prices.[1] NEW YORK (AP) — Treasurys fell Wednesday amid fears the government's record $30 billion auction of 2-year debt will flood the market with new supply.[37]
NEW YORK, April 23 (Reuters) - The U.S. government may consider reviving the one-year Treasury bill to fill a bloating budget gap and raise funds to pay for a $152 billion stimulus plan as tax receipts may fall due to a slowing economy.[34]
The yield on the 2-Year note is above the 2.25% federal funds rate, which is a sign that the FOMC will be 25 and done taking the funds rate to 2.00% on April 30. The yield on the 5-Year note is above 3.00%, and the U.S. Treasury will auction $19 billion new ones this afternoon.[38] The 5-year note fell 10/32 to 97 19/32 after the U.S. Treasury awarded $19 billion in 5-year notes at a high rate of 3.16 percent.[21]
The rest of the bets are for a quarter-point cut to 2 percent. "It was a horrible, horrible auction,'' said David Ader, head of U.S. government bond strategy in Greenwich, Connecticut, at RBS Greenwich Capital, one of the 20 securities firms required to bid at Treasury sales. "An auction result like this is going to push people to say, `I'm going to step aside.'''[13] Government bonds have handed investors a loss of 1.3 percent in April, indexes compiled by Merrill Lynch showed. The last time the securities declined was in June, when they lost 0.5 percent. It is also the biggest monthly drop since falling 1.9 percent in July 2003.[5]
Treasuries have handed investors a loss of 2.1 percent since the end of March, on course for the first monthly decline since June, according to indexes compiled by Merrill Lynch & Co. A government five-year note auction yesterday drew the weakest demand since 2003. The Standard & Poor's 500 Index has returned 5 percent this month. Futures contracts on the Chicago Board of Trade show there's a 28 percent chance the Fed will keep its target for overnight bank lending on hold at 2.25 percent on April 30, up from 2 percent a week ago.[12] In the Treasury's largest ever offering of two-year notes, the bid-to-cover ratio, a gauge of overall demand, came in at 2.21, down from 2.44 in the two-year auction in March. The level of indirect bids, which include those from overseas central banks and large institutional investors, was about 33 percent, up from March's 26.5 percent but down from its long-term average of 35 percent.[39] Indirect bidders, a group of investors that includes foreign central banks, bought 29 percent of the securities, down from 34 percent in March. Traders pushed two-year note yields to the highest level since Jan. 18 on speculation the central bank won't lower borrowing costs further after this month.[13]
Two-year note yields exceeded the Fed's target rate for overnight loans between banks, currently 2.25 percent, by the most since 2006.[14] The yield on the two-year note finished the day above the Fed's main interest-rate target for the first time since June 2006 - a possible sign that the sentiment behind a 10-month bond rally might be shifting.[20] Two-year yields were hovering near five-year lows. Traders have sharply pared their two-year note holdings on expectations that the Fed is near the end of its rate-cutting campaign and growing fears about inflation stemming from surging oil and food prices worldwide.[39]
As the Fed keeps lowering rates to goose the economy, lower interest rates make the U.S. dollar less appealing to foreign investors and make foreign goods costlier, as you know, worsening the inflation we already have from absurd oil prices.[26] Several Fed policymakers and observers are concerned that continued interest rate cuts could sustain inflation, which is expected to tail off over the next year.[27] Homebuyers who thought mortgage rates were heading down because of all the Fed interest rate cuts need to think again. According to Freddie Mac, 30-year mortgages rates increased 0.15 percent this week, despite all the rate cuts from the Fed. If you think that is strange, remember that 30-year mortgage rates are not tied to the Fed interest rates, but instead are controlled by the mortgage-backed securities market.[19] The Fed has cut interest rates by 3 percentage points starting last September, when it cut the federal funds rate to 4.75 percent from 5.25 percent.[29]
Futures contracts on the Chicago Board of trade show there is an 82 percent chance of a quarter point interest rate cut.[30]
Wall Street was encouraged by the latest first-quarter earnings reports and by a drop in oil prices. The 2-year note, the most sensitive to interest rate movements because of its short duration, was unchanged at 99 5/32 with a yield of 2.20, up from 2.19 percent Tuesday.[1] "Measures of inflation, particularly at the headline level, have been worrisome of late and would only be exacerbated by significant further easing." The 2-year note, the most sensitive to interest rate movements because of its short duration, fell 2/32 to 99 5/32 and yielded 2.20, up from 2.19 percent Tuesday.[37]
Treasuries are considered credit risk-free since interest and principal are backed by none other than the U.S. government. Like most bonds, though, the value of these generally rises and fall with changes in interest rates.[26] Note a bond's duration, a complicated calculation expressed in years that measures how volatile a bond can be as interest rates rise and fall.[26]
Government bonds have fallen in the last few sessions on expectations the central bank will lower rates by a quarter point, but then hold there until the end of the year.[37] Treasuries extended losses as Tokyo share prices rose over 2 percent.N225 and Japanese government bonds nosedived, with JGB futures plunging by more than two full points.[3] Consumer prices rose at a 4 percent annual pace in the 12 months through March, according to the Labor Department. U.S. government debt has lost 1.6 percent this month through April 23, according to bond indexes compiled by Merrill Lynch & Co. That compares with a gain of 0.7 percent for investment-grade corporate bonds and a gain of 0.1 percent by mortgages during the same period.[13]
A surge in stock markets smashed any safe-haven bid for government debt, while a poorly received five-year note auction in the afternoon also under cut bonds.[7] The Fed, said the official, could "theoretically buy anything to pump money into the system," including "state and local debt, real estate and gold mines, any asset." That sounds much like the same broad conception of empowerment Greenspan had injudiciously taken note of in 1997. Two months later, the Australian Financial Review weighed in, wondering whether a 234-point intra-day surge on the New York Stock Exchange could be attributed to the PPT: "There is a belief that this team represents a powerful and secretive hand that is ready to act any time the Dow looks ready to tank big time."[40] "There's definitely a wide credit spread in Libor reflecting the unwillingness of banks to lend to each other,'' said Carl Lantz, an interest-rate strategist in New York at Credit Suisse Group, one of the 20 primary dealers that trade with the central bank. "This economy is going to take some time to heal.'' Ten-year yields will fall below 3 percent later in the year, he said in an interview yesterday.[12] Futures traders pared odds the central bank will lower rates after a quarter-point reduction on April 30, sending two- year yields above the Fed's rate for the first time since 2006.[12]
For most of the past three years, the two-year note's yield has been trading anywhere from 0.25 percentage point to 0.5 percentage point below the expected federal-funds rate six months down the road as determined by federal-funds futures contracts.[35] Two-year note yields have climbed about 1 percentage point since touching 1.24 percent on March 17, the lowest since July 2003.[14]
Ten-year Treasury Inflation Protected Securities yield 2.38 percentage points less than regular U.S. Treasuries, versus 2.25 points on March 25.[5] Financial market indicators do not show any strong evidence of a rise in long-term inflationary expectations. These indicators include the yield difference between Treasury inflation-protected securities and ordinary Treasuries and their respective European equivalents. Some of these indicators have actually gone up a little. More importantly, they are not really forward-looking. The yield difference tells us more about liquidity conditions in those markets than about future inflation. I'm not sure I understand this. Unless liquidity conditions in TIPS are significantly different from liquidity conditions in Treasuries, how could "liquidity conditions" keep down the spread between the two? I'm always a bit suspicious when economic commentators have to resort to the slippery notion of "liquidity" to explain away something which doesn't fit their thesis.[16]
Inflation-linked government bonds did even better: the iShares Lehman TIPS ETF (NYSE: TIP) gave back almost 12%. (Neither is a TCI position.) Alas, as Treasury prices rally from all this popularity, their yields fall but thankfully, there's no need to invest directly in Treasuries.[26] A sell-off in earlier overseas trade had pushed two-year yields above 2.50 percent, their highest since the middle of January. Short-dated Treasuries are currently on track for their worst month in more than two decades, based on JPMorgan's government bond index of 1- to 3-year maturities.[22] You can look for funds that hold a variety of government bonds while offering yields above Treasuries. There are dozens of such funds; two are in the 21st Century Investor Dividend Portfolio.[26]
Friday. It can be done, I suppose, but it's hard to find safer payouts than the ones you get from U.S. Treasuries. Stock market volatility and a sluggish economy have been sending investors into the arms of these practically risk-free bonds.[26] Yields were unchanged in after-hours trading. The 3-month Treasury bill's yield was at 1.38 percent, down from 1.25 percent late Thursday, while its discount rate was at 1.353 percent. Treasury investors also kept their eye on the stock market's moves during the session. Both the Standard & Poor's 500 index and Dow Jones industrial average closed slightly higher after being in negative territory for much of the session.[2] The Merrill Lynch High-Yield Bond Index shows that junk bonds yield seven percentage points more than low-risk Treasury bonds, down from the 8.6-point peak hit on March 17, the first trading day after Bear's demise.[41] There's no convincing answer short of letting time pass. For those looking for a bit of perspective in real time, among the worthy gauges to watch in search of clues is the spread in junk bond yields over the 10-year Treasury yield. By that standard, a minor milestone recently passed considering that this spread touched a recent peak of 7.93% last month (based on closing yields on March 17, 2008), as our chart below shows.[36]
If rates on the 10-year Treasury were to rise to 6%, your $1,000 might sell for maybe $800, since another investor could earn more by buying a new bond at the higher coupon rate.[26] Home sales, new-home starts, nonresidential construction, durable goods orders, retail sales, new jobs and most other indicators of economic vitality are either contracting or limping along at recessionary levels. Banks are not lending money because they can't bundle new mortgages and business loans into bonds and sell those securities to insurance companies, pension funds and other fixed-income investors.[27] The UK plan is less generous. The similar U.S. scheme is the Term Securities Lending Facility, or TSLF. This allows investment banks to swap a wide range of securities, including asset and mortgage-backed bonds, for treasury bonds.[42]
Right now, Congress ought to able to pursue this basic question: Is the PPT a kind of committee for the extra-legal coordination, manipulation and subsidization of financial institutions and markets? Has it been stepping in when free-market forces have become too perilous to profits and asset values -- in financial crisis years like 1998, 2001 and 2007. Over the last decade or so, the Treasury Dept. and the Fed have both developed something of a scofflaw attitude toward strict interpretation of federal statutes and regulations. Both winked in the late 1990s, as federal regulators allowed Citibank to merge with Travelers Insurance, despite contrary law still on the books. Both winked in more recent years, as major banks set up huge multi-billion-dollar structured investment vehicles, or SIVs, to do on an off-the-books basis what they were not allowed under banking law.[40] In the four auctions held so far, the Fed has provided close to $158.95 billion worth of the Treasury securities to investment firms.[43] The Fed will extend Treasury securities to dealers at Thursday's auction in exchange for riskier collateral.[44]
The market is "deciding between a 25-basis-point cut and the Fed staying on hold,'' said Matthew Moore, an interest-rate strategist in New York at Banc of America Securities LLC, one of the 20 primary securities dealers that trade with the Fed. "We're seeing a pass-through from commodity, food and energy prices into inflation. That's worrying some people about investing in bonds.''[11] There is fear that continuing to lower rates will spark inflation, higher oil prices, and devalue the dollar. "We think the Fed will sensibly start to turn its attention to fighting inflation," said Joseph Balestrino, a senior portfolio manager with Federated Investors.[37] The four-week moving average — which helps investors look past week-to-week volatility — also fell, dropping by 7,250 to 369,500. The government data followed a Wall Street Journal report predicting the Fed will probably lower its benchmark fed funds rate by another quarter point when it meets next week, but then take a pause.[21] Investors have increasingly come to doubt whether the Fed will lower interest rates next week, the trader said.[3] The advance came to an end in April after the Fed cut interest rates six times and arranged lending programs to increase trading in the money markets.[12] The advance came to an end after the Fed cut interest rates for the sixth time since September last month and arranged lending programs to increase trading in the money markets.[11]
Observers will focus on the accompanying policy statement for clues as to whether the Fed will take a pause in cutting interest rates. They will wait to see if the 3.25-percentage-point reductions since June--and the various special lending facilities to bolster bank reserves initiated since December--have their intended effects on domestic economic activity.[27]
London Sunday Telegraph, Mar. 22, 1998).]] Edward Chancellor, in his 1999 book, "Devil Take the Hindmost," noted that if these interventions occurred, they raised a major issue of "moral hazard." The likelihood they did occur is increased by the fact that a year after the PPT group's launch, a retiring Fed board member, Robert Heller, wrote a much-discussed article in The Wall Street Journal that in the case of an another emergency like 1987, there might be a better alternative than the Fed's usual remedy -- interest rate reduction.[40] The bottom line is that when 30-year mortgage rates go up, despite the lowering of key Fed interest rates, it is typically because of inflationary fears.[19]
In Thursday's auction, investment firms paid an interest rate of 0.2500 percent for a slice of securities.[33] "There is a growing perception that jitters over the financial sector may have a relatively limited pact on the real economy, and that a rate cut to 2.0 percent would be sufficient," said Yasutoshi Nagai, chief economist for Daiwa Securities SMBC.[29]
In Germany, returns on two-year German Bunds were up 1.0 bps to 3.87%, five-year yields up 2.4 bps to 3.94%, 10-year yields up 3.6 bps to 4.18% and 30-year yields up 4.6 bps to 4.71%. In Canada, the Bank of Canada released its spring Monetary Policy Report and elaborated on the statement made following the BOC's decision on Tuesday to cut rates by 50 basis points.[15] Yields on two-year U.S. securities, among the most sensitive to changes in borrowing costs, rose 72 basis points over the two weeks.[12] Ten-year yields rose 3 basis points to 3.86 percent, climbing for a fifth week.[11]
The yield on the 0.8 percent Japanese bond due in March 2013 advanced 17 basis points Friday, the most since June 1999, to 1.22 percent.[5] Among 5% coupon paper in the deal, bonds maturing in 2011 were tightest to yesterday's Municipal Market Data triple-A yield curve, with yields 10 basis points over.[45] Bonds maturing in 2009, 2013, 2014, and from 2021 through 2023 were widest to the scale, with yields 15 basis points over.[45]
Ten-year yields gained 5 basis points to 3.88 percent, climbing for a fifth week.[12] The short-term yield, the most sensitive to changes in the monetary policy outlook, has risen around 40 basis points from two weeks ago, flattening the yield curve.[31]
On the spot market, the U.S. 30-year yields are up 6.9 basis points to 4.561%. 10-year notes are down 27 ticks to 115-07. 10-year note yields are up 10.3 basis points to 3.835%.[46]
NEW YORK, April 23 (Reuters) - The U.S. government's record $30 billion offering of two-year notes on Wednesday generated decent demand, as bargain-hunters snapped up much cheaper new supply than a month ago.[39] NEW YORK ' The municipal market was largely unchanged today, as the California Department of Water Resources came to market with a $633 million revenue bond offering. 'We're pretty flat to this point,' a trader in New York said.[47] During 1974-1975, we saw the New York City financial crisis with possible bankruptcy concerns, and the issue of 13% tax-exempt Big Mac muni bonds.[48]
John Crudele of The New York Post has pursued it in several columns, and others have acknowledged hearing about the buy orders fr om friends in the S&P; trading pits. Another columnist, James Pethokoukis of U.S. News & World Report, described at length how in the final two trading hours on Aug, 16, 2007, the Plunge Protection Team might have encouraged one or two major institutions to buy stock index futures, because a 300-point Dow decline was briskly wiped away. Then he felt obliged to close with a semi-disavowal: "there's never been any official confirmation of this," and that insiders both in Washington and Wall Street "totally dismiss" these reports. With the recent market panics and surges, the Working Group -- if not its deepest secrets -- might have again appeared on the front pages. This did not happen.[40] Carley Garner - Senior Analyst and Assistant Branch Manager of Alaron Las Vegas; Stocks and Commodities Magazine columnist; Author of "Optionology 101" to be published in mid-2008 by FT Press. She is also involved in free trading education through www.CommodityTradingSchool.com. Carley Garner is a Magna Cum Laude graduate of the University of Nevada Las Vegas, from which she earned dual bachelor's degrees in both Finance and Accounting. Upon completion of her education, Carley jumped into the options and futures industry with both feet. Within months in the business, she had published her first article in a nationally distributed periodical. She has been featured in the likes of Stocks and Commodities, Futures, Active Trader, Option Trader, Your Trading Edge, and Pitnews Magazine. Carley is often interviewed by news services such as Reuters and Dow Jones Newswire, and has been known to participate in Radio interviews. Her newsletters the Dow Report and the Bond Report are widely distributed and have garnered a loyal following.[49] Ten-year Japanese bond futures plunged as much as 1.8 percent, forcing the Tokyo Stock Exchange to order a 15-minute halt in trading for the first time since September 2002.[5]
Divide that $0.96 a share by the original purchase price of $10 and the effective yield equals 9.6%. Mattive feels that income investors are best served by buying and holding companies that consistently raise their payments. "Its very reasonable to expect dividend stocks to increase in value over time. By their nature, these are profitable companies that are growing at fairly predictable rates. [24] 'In March, the market was overwhelmed by pessimism (about the economic outlook), and so far in April, optimism has ruled trading. Players have been searching for incentives to unwind flight-to-quality trading without worrying too much about the rationality of yield levels,' he said. Investors shrugged off consumer price data, as they mainly matched market expectations.[50] Investors need to be aware that there are upward pressures on U.S. Treasury yields and each maturity is trading around key levels this morning.[38] Changing expectations about the Fed are "definitely having an effect on the Treasury market,'' said Joe Larizza, director of government and agency debt trading in Memphis, Tennessee, at Vining Sparks IBG, a broker-dealer. The yield curve indicates "the Fed is either going to be more on hold, or they're not going to be aggressive in lowering rates.''[13] The short end of the Treasury curve closed above the Fed funds rate for the first time since 2006 as two-year yields were up 19.3 bps to 2.38%.[15] Though it would break the Fed dtente with Treasury, it is high time Bernanke stated publicly that it will be virtually impossible to get the U.S. economy on a sustainable growth path if the dollar remains so overvalued against Asian currencies and the U.S. continues large trade deficits with China, Japan and other Asian countries.[27]
The Bank of England is enjoying latecomer's advantage. It has followed the progress of the three liquidity programmes launched by the U.S. Federal Reserve to unfreeze the credit markets. The UK central bank decided to craft its own '50 billion Special Liquidity Scheme along similar lines to one of the Fed's initiatives.[42] Investment banks are borrowing less:A Federal Reserve report Thursday said big Wall Street investment companies averaged $22.6 billion in daily borrowing over the past week. That compares with $24.8 billion in the previous week. It marked the third straight week where investment firms borrowed less, a sign that credit conditions might be improving.[32] WASHINGTON (AP) — Big Wall Street investment companies are pulling back on their borrowing from the Federal Reserve's emergency lending program. The Federal Reserve says in a report Thursday that those firms averaged $22.6 billion in daily borrowing over the past week. That compares with $24.8 billion in the previous week.[33]
In March 2008, the Senate Finance Committee's top Democrat, Max Baucus (D-Mont.), and top Republican, Charles Grassley (R-Iowa), were consumed by interest in whether Paulson pressured Bernanke into having the Federal Reserve broker the controversial deal in which J. P. Morgan Chase got $30 billion to help take over Bear Stearns.[40]
When Federal Reserve officials meet next week to discuss the course of interest rates, they might take some comfort from recent bond-market action in the past few days.[41] Federal Reserve policymakers meet for two days to set interest rate policy, with most dealers expecting anothe.[5]
The latest regulatory plan from the Treasury Department, with the potential to turn the Federal Reserve into a super-regulator overseeing state-chartered banks and bank holding companies, and acting as a guarantor of market stability, is another in a long line of half-baked government responses to financial difficulty.[51] " No one wanted to buy anything but Treasurys. They weren't concerned about return on principal, just return of principal." That started to change in December, when the Federal Reserve announced the formation of the Term Auction Facility to assist in lending to banks.[35]
Alan Greenspan had just taken over as the Federal Reserve Bank chairman, and some believe that the Fed intervened to support the market the next day -- by either buying Standard & Poors futures or telling several collaborative broker-dealers to do so.[40] Volcker is regarded as one of the last honest men in U.S. finance. Since 1987, the lawful and implied powers of the Federal Reserve have probably been extended further than the former Fed chairman would like - and, conceivably, further than he knows.[40] Baucus and Grassley asked for all kinds of details. They seem not to have asked for information on how closely Paulson and Bernanke had been collaborating since 2006 in their mutual roles on the Plunge Protection Team. and how they interpreted their powers under the 1988 presidential proclamation. This is unfortunate. Former Fed Chairman Paul Volcker, a well-respected senior statesman, stated his concern bluntly. "To meet the challenge," Volcker said, "the Federal Reserve judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending certain long-embedded central banking principles and practices."[40]
Treasuries tumbled Thursday, as data signaling the economy's resilience boosted expectations that the Federal Reserve will scale back on aggressive interest-rate cuts.[20] There was huge appetite for low-risk, short-dated Treasuries prompted by hopes of more aggressive interest-rate cuts from the Federal Reserve in the wake of the near collapse of Bear Stearns.[39]
Real Time Economics offers exclusive news, analysis and commentary on the economy, Federal Reserve policy and economics.[35] The chart that stimulated your comments combined data from the U.S. Federal Reserve and FTSE/NAREIT, and was derived from a series of spreadsheet calculations on that data.[48] "Semi-secretly" would be more like it. The Working Group, or PPT, is much-pondered but reclusive group that has declined to submit to the federal Freedom of Information Act or to testify in detail before Congress about its activities. This is true even though its current chief, Treasury Secretary Henry M. Paulson Jr. - Federal Reserve Board Chairman Ben Bernanke is another prominent member -- made no secret of revving up its operations after he took took over at Treasury in 2006.[40]
The White House has forecast a federal deficit of at least $410 billion for fiscal 2008, more than double the $163 billion last year. This fiscal deterioration has resulted in a spike in government borrowing this year, especially in the Treasury selling more bills -- government IOUs whose maturity is a year or less.[34] The Treasury Department was set to issue the short-term debt Wednesday afternoon, and will also issue $19 billion of 5-year notes on Thursday.[37] There was strong demand for the Treasury Department's issuance of $30 billion worth of 2-year notes, despite fears that it might overload the market and devalue the debt.[1]
Some traders are factoring fewer rate reductions into Treasury prices on speculation policy makers are concerned that lower borrowing costs will stoke inflation, which erodes the value of the fixed payments on longer-maturity debt.[12] " Companies that were exporting deflation are now exporting inflation. As an investor, 2% is not going to cut it it's hard to justify Treasury rates at these low levels."[35]
One thorn in the side of bond investors is inflation. A 3% rise in inflation will send your 5% bond right into the interest sub-basement and take a chunk out of its price.[26] If you buy a 10-year, $1,000 TIPS in March and by June inflation rises +1%, your bond principal would be $1,010. Hold the bond until it matures in 2018 and you receive either the inflation-adjusted principal or the original $1,000, whichever is higher; if there is deflation, the principal won't fall below its $1,000 par value. The bond's interest payments also rise with inflation, as they are calculated at a fixed rate on the inflation-adjusted principal.[26] Japanese annual inflation jumped to 1.2 percent in March, triggering one of the biggest ever sell-offs in yen bonds.[18]
Friday's global bond sell-off was sparked after inflation in Japan reportedly reached a 10-year high. Japanese government bond futures suffered their biggest one-day loss in five years, following a report of 1.2% inflation in Japan.[28] Consequently there's a massive unwinding of safe-haven trades and position squaring," said RIA Capital Markets strategiest Nick Stamenkovic. "It's a U.S.-led phenomenon but it is evident across the globe in the major G7 bond markets." Japanese government bond futures suffered their biggest one-day loss in five years with June 10-year futures falling 1.49 point to 135.59.[18]
TOKYO (Thomson Financial) - Japanese government bonds ended Friday morning sharply lower, as positive signs for the U.S. economy and corporate earnings overnight led to further unwinding of the flight-to-quality trade.[50] Yields on government bonds have jumped, but "people are confusing a change in prices with a change in facts," says David Ader, government bond strategist at RBS Greenwich Capital Markets in Greenwich, Conn. "There has been nothing to suggest things are turning around in the economy," he says.[10]
Yields on two-year Canadian government bonds were up 9.5 bps to 2.88%, five-year yields up 8.3 bps to 3.20%, 10-year yields up 5.1 bps to 3.72% and 30-year yields up 3.1 bps to 4.19%.[15] The yield on a 10-year Japanese government bond was pushed up to 1.61%, from 1.50%, on Thursday.[28]
Euro zone government bonds initially fell on Friday and U.S. Treasuries took a hit in Asia and Europe.[17] TOKYO, April 23 (Reuters) - U.S. Treasuries were little changed in Asia on Wednesday as investors stayed to the sidelines before the biggest-ever auction of two-year bonds scheduled for later in the day.[9] The industry benefits from a favourable regulatory environment, and has maintained relatively healthy Ebitda margins of 25% to 28%, versus 10% to 20% for similar companies in the U.S. In December 2007, the company'''s net leverage stood at 2.8 times. Investors took a chance on this credit which lies on the cusp of investment grade, rated BBB- by both Standard and Poor'''s and Fitch. Nine Dragons addressed credit downgrade risk by offering a coupon step-up to its bonds, namely an extra 100bp if the rating drops below investment-grade, and a further 200bp should a rating suffer a downgrade to below BB. In comparison, U.S. companies have offered just 25bp per notch.[52] In terms of secondary performance, the bonds tightened during U.S. trading, then widened during Asia trading. '''It looks as if there were add-on buyers in the U.S., and then some sellers in Asia yesterday morning,''' says an investor.[52] '''Merrill Lynch was possibly supporting the deal. This wouldn'''t be surprising since the level of subscription was not huge,''' says a source on the buy-side. '''A bond trading at re-offer is a good thing,''' says another investor, '''and no-one has lost any money on this trade.'''[52] Investors sold off bonds and chased shares higher from the outset of trading in Tokyo.[50]
Takahashi said inflation concerns, which typically erode longer-dated bonds, were not reflected further out on the yield curve now. That is because investors are unwinding bets they had made for the yield curve to steepen, pushing longer-dated yields lower as a result, he said.[9] Investors' anxiety centered on the fact that a major economy which had for years experienced low inflation was beginning to feel the pinch of rising prices.[17] Falling inventories helped lifting prices today. Wall Street ended its second straight winning week with a moderate advance Friday, overcoming investors' concerns about consumer confidence and inflation.[30]
There are plenty of people on Wall Street who think the market is wrong to believe the Fed will stop at 2%. This camp sees the economy getting substantially worse, forcing the Fed to ease credit further -- and sparking renewed investor demand for Treasuries as a good place to hide.[10] "What it means is that the market isn't so convinced that the economy is falling apart as it was a month ago," said David Wyss, chief economist at Standard and Poor's. "It also means that investors are not expecting the Fed to go down as far--25 basis points instead of 50."[28]
"Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, " Heller wrote, "the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole."[40] The authoritative Financial Times quoted a Fed official, who declined to be identified, but acknowledged that policy-makers had considered "buying U.S. equities" -- not just futures.[40]
"So at least there's no incentive to take money out of the U.S., which should stabilize things." On a long-term issue though, Wyss noted that because bonds were becoming more global, the Fed has less control over U.S. markets than they used to, forcing the central banks to act in coordination.[28] To date, Fed efforts have not increased bank lending, domestic demand for goods, and services or inflation. The latter is being driven by the tight supplies of oil and other commodities on global markets, and the ill-conceived U.S. ethanol program.[27]
Wanting to avert a broader panic that could endanger the entire U.S. financial system, the Fed agreed last month to temporarily let investment firms obtain emergency loans directly from the Fed, a privilege that only commercial banks had been granted.[43]
At current levels, the Fed's fees appear higher on an annualised basis. The fact that banks get less government debt for each dollar of their collateral under the UK plan means the rates are actually more or less in line.[42] The credit crunch can feel like a battle against garden weeds: Remove one problem and another pops up. Banks have minimized their exposure to high-risk corporate debt by hacking away at the once-overwhelming backlog of leveraged-buyout debt over the past few months. Just recently, other struggling companies have started to turn to their lines of credit for help, leaving banks exposed to junk debt in another, perhaps even-riskier form. With bankruptcies expected to increase in the coming year, and with debt investors unwilling to finance new deals (especially for companies on the verge of collapse), these lines of credit.[53] The deal priced at 505.2bp over five-year Treasuries, or a yield of 8%, with a coupon of 7.785%. This was a challenging credit story and the borrower reportedly spent a significant number of man-hours last week educating investors about the strength of its credit. The company also took time to introduce investors to its strong and competent management team. Nine Dragons is the largest company of its kind in China. It has shown an ability to pass on potentially higher material costs to consumers.[52] We advised investors generally to avoid U.S. equity REITs in January 2007. At that time, we felt they had gone too far, too fast and were bound to suffer a reversion to the mean, by not performing or by declining. They went down a lot. In August 2007, we reiterated our concerns that REITs were overvalued due to their distribution yield being too low relative to 10-year treasuries.[48]
Treasuries briefly pared losses after the Commerce Department said sales of new homes in the U.S. fell 8.5 percent in March, about four times the decline forecast in a Bloomberg News survey.[14] The clearing yield on the new two-year issue was 2.225 percent, sharply higher than the 1.761 percent on the two-year supply sold in March. "It's all about the yield grab," said George Goncalves, chief Treasury/TIPS and agency strategist with Morgan Stanley in New York.[39] The two-year yield hit a high of 2.44 percent on Thursday, the highest since Jan. 18, and had finished the day above the federal funds rate for the first time since June 2006.[29] The 2-year note fell 11/32 to 99 15/32 with a yield of 2.39 percent — well above the target federal funds rate of 2.25 percent, and up sharply from 2.20 percent late Wednesday.[21]
The 30-year yield rose to 4.51 percent. The 3-month Treasury bill's yield was at 1.22 percent, down from 1.33 percent late Tuesday, while its discount rate was at 1.20 percent.[1] The gap between three-month Treasury bill yields and the three-month London interbank offered rate, the so-called TED spread, shows credit costs are still rising.[11]
In trading Thursday, the yield on the two-year Treasury note poked back above the federal-funds target of 2.25%, something that's rarely happened in the past three years.[35] The two-year Treasury note traded 9/32 lower in price for a yield of 2.39%, up from 2.20%.[20]
If 10-year Treasury yields don'''t shoot up next, or if REITs maintain a reasonable spread if Treasury yields do rise, REITs could be a reasonable investment now. If today is not as bad as the years before 1986, you might look into equity REITS as a separate class (note that they are in the S&P; 500 for about a 2% weight).[48]
"But with a few short-lived exceptions, the 10-year Treasury bond has delivered higher yields than the average utility stock.[24] Nilus Mattive takes a closer look at utility stocks and treasury bonds. In this issue of Money and Markets, Mr. Mattive discusses the long term benefits of investing in utilities verses treasury bonds.[24] Jupiter, Fla. ( PRWEB ) April 24, 2008 -- Nilus Mattive takes a closer look at utility stocks and treasury bonds.[24]
If 10-year Treasury yields fall to 4%, your bond becomes suddenly more valuable.[26]
The average yield on an index of 100 junk bonds tracked by KDP Investment Advisors fell to 9.26% on Thursday, down from 9.50% a week earlier and down from the recent peak of 10.16% in mid-March.[10] The bond market selloff came after data showed unexpected resilience in business investment and the labor market, sending yields higher across all maturities.[23] "The bond markets have become global," Wyss said. "This has been going on gradually for the last 25 years, where money managers have been more confident to move money across currencies to find the best yield, and one of the reasons why the United States has had such strong capital inflows for the last couple of years is because we've had the best yields out there." That has changed though.[28]
The yield on the 20-year bond rose to 2.195 percent from 2.170 percent, and the yield on the 30-year bond increased to 2.450 percent from 2.430 percent.[50] At midday, the yield on the benchmark 10-year bond rose to 1.540 percent from 1.490 percent at the close Thursday.[50]
The yield on the two-year note rose to 0.800 percent from 0.720 percent, and the yield on the five-year note surged to 1.200 percent from 1.050 percent.[50] Two-year notes fell for the ninth straight day, the longest slump since October 2005, and five-year yields touched a 15-week high. "It's disappointing,'' Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley's individual-investor clients, said of the auction.[13] The two-year note's yield of late is higher than the expected federal-funds rate six months from now, a dramatic reversal from a trend that has persisted since March 2005.[35]
Five-year yields were up 14.0 bps to 3.09% after a $19 billion auction in 5-year notes had a stop-out rate of 3.159% - the highest in four months.[15] Most of the bond losses were recouped, however, in the early afternoon after poor demand in the auction of $19 billion in five-year notes.[20] There were no obvious comparables for the transaction, although sources quoted Gazprom'''s latest $1.5 billion dual-tranche deal. Its five-year bonds were trading at 458bp over Treasuries, while its 10-year bonds traded at 450bp over Treasuries.[52] The total is comprised of $2.283 billion of competitive deals and $11.206 billion of negotiated bonds.[47]
Visible Supply The Bond Buyer's 30-day visible supply fell $217.2 million to $13.489 billion.[47]
Bonds from the $40 million series C-2 mature in 2041, are priced at par to yield 3.75%.[47] Given the structure of the yield curve, it is now much cheaper for the government to issue short-dated securities to raise funds rather than issue long-dated bonds.[34]
What'''s bad for Uncle Sam'''s debt costs, meanwhile, has been good for the stock market and for corporate bonds, as investors have become less risk-averse.[10] We did not say then, but clearly if an investor saw a steady shift from lower to higher yield by REITs, a gradual return to the class could have been considered. Those who took that approach in 2008 have done well, as equity REITs have outperformed the overall U.S. stock market.[48]
The stock market's slide brought some buyers back into the Treasury market after an earlier sell-off had pushed yields to 3-month highs.[22]
As the crisis subsides and inflation becomes a bigger worry, Treasury yields may rise. REITs will need to follow with more distribution or lower share prices, if they are to hold their yield spread position.[48] American Treasury and British gilt prices fell in tandem, pushing up yields across the board.[28] The 10-year Treasury provides an annual yield of 3.7% while the utility provides an annual yield of 9.6% based on the initial purchase price.[24]
The yield on the benchmark 10-year Treasury note, which opened at 3.69%, finished at 3.74%.[45] The benchmark 10-year Treasury note fell 13/32 to 98 1/32 and yielded 3.75 percent, up from 3.69 percent late Tuesday, according to BGCantor Market Data.[37]
The new five-year note drew a yield of 3.159 percent, above the 3.12 percent yield in pre-auction trading and higher than the average forecast of 3.109 percent by nine bond-trading firms surveyed by Bloomberg News.[13] Yields on 10-year German notes, a benchmark for Europe, climbed for a second week, to 4.18 percent.[5]
Traders also sold U.S. debt as yields on German bunds touched a one-year high and Japan's five-year notes dropped the most in nine years.[11] At last month's sale of five-year notes, investors' bids tallied $1.98 for every $1 of debt sold, the smallest so-called bid-to-cover ratio since April 2006.[14] The institutional pricing follows yesterday's retail order period, during which about $170 million of bonds were sold to retail investors, according to Tom Dresslar, spokesman for state Treasurer Bill Lockyer.[47] The transaction, which was sole-led by Merrill Lynch, built a book of $500 million from 70 accounts, although the number of investors who were actually allocated bonds is unknown.[52] Though another investor was somewhat disappointed with the aftermarket performance. '''I personally consider this a quasi high-yield transaction,''' he says. '''The high-yield index has rallied 20bp, and unfortunately these bonds have not performed in line with that. I suspect they will settle down, given a little time.'''[52]
The "catch" is that the best, and worst valuations will only be obvious in hindsight. That suggests two basic plans for dealing with the unknown. One, attempt to pick peaks and troughs and concentrate all buying, selling and rebalancing around those points in time. Diversify the bet by recognizing that it's hard, very hard, to forecast valuation peaks and valleys ex ante. As such, we can invest a portion of our risk capital earmarked for new deployments over a period of time, concentrating those investments over spans of months or quarters that appear to be favorable to our long-term objectives. The downside to the latter is that results will trail those of the investor who correctly allocates money at or near the peaks of valuation opportunities.[36] "Of course, there is probably some impact from the rise in share prices and the selling in JGBs," said a senior trader for a European investment bank. "But the main thing is that the trend in Treasuries has changed," the trader said, adding that investors who bought earlier at higher prices had little choice but to sell to cut their losses.[3] Nilus Mattive, a financial analyst at Weiss Research, is the editor of Dividend Superstars, a monthly publication and is also the editor of the companys daily e-letter, Money and Markets. Formerly a senior editor of Standard & Poors The Outlook, the oldest continuously published investment newsletter in the country, he has written for a number of investment websites, including BusinessWeek and Individual Investor. Mr. Mattive is the author of The Standard & Poors Guide for the New Investor (McGraw-Hill, 2004) and has appeared on the popular investment radio show, Traders Nation, to discuss his views on personal finance.[24] Money and Markets ( www.moneyandmarkets.com ]] www.moneyandmarkets.com ) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil.[24]
Sentiment on U.S. stocks received a boost after robust profits from American Express (AXP.N: Quote, Profile, Research ), which fed growing relief that corporate profitability is holding up and optimism that the worst may be over for financial companies.[4] The major U.S. stock indexes rallied on Thursday after an unexpected drop in jobless claims and Ford Motor Co. (nyse: F - news - people )'s surprise first-quarter profit helped reinject some optimism about the economy into the market.[50] Herring said there are still challenges for the Treasury market and the U.S. economy despite the dramatic sell-off, but the inability of fixed income to rally on bad news is a bearish sign. 'You don't need sellers for Treasuries to fall, you just need an absence of buyers,' he said.[46] Herring said there are still challenges for the U.S. economy despite the dramatic sell-off in Treasuries, but the recent inability of fixed income to rally on bad news is a bearish sign. 'You don't need sellers for Treasuries to fall, you just need an absence of buyers,' he said. The U.S. dollar had its best day in a month as the Dollar Index gained the most since Feb. 7.[15]
Bonds trimmed losses briefly after news that a cargo ship contracted by the U.S military fired warning shots in the Gulf at small boats believed to be Iranian. Wall Street lost its early optimism after a report showing an index of U.S. consumer confidence hit a 26-year low in April.[22] On the futures market, the U.S. 30-year bonds are down a full 1 point and 3.5 ticks to 115-28.[46] The price of the June futures contract for the 10-year bond dived to 136.10 yen from 137.08 yen.[50]
Last week's initial jobless claims number was reported to better-than-expected and the Durable Goods orders (ex-transportation) were slightly better than most estimates. The bond market seems to be focused on price pressures more than anything. and don't forget about the seasonal tendency for this market to trade lower.[49]
Sell the bond before it matures and its value will reflect the current interest rate environment.[26] When the bond is issued, it pays a fixed rate of interest, called a coupon rate.[26]
If you buy a 10-year Treasury worth $1,000 that carries a 5% coupon rate and you hold it until it matures, you can expect to receive $50 a year in interest and get back your $1,000 in 2018.[26] Last year the iShares Lehman 7-10-Year Treasury exchange-traded fund (NYSE: IEF), which tracks U.S. Treasuries, returned more than 10%, almost double the S&P; 500's total returns of 5.5%.[26] There has been talk that the Treasury Department could also bring back the three-year note after it stopped issuing that maturity just a year ago when the government's coffer was flooded with record inflows, analysts said.[34]
"Now we're watching stocks," said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.[22] Tim Metz, in "Black Monday," contends that "some leaders and market makers at the New York Stock Exchange and Chicago Mercantile Exchange collaborated to save the stock market by rigging stock information and prices."[40]
On the stock market, the benchmark Nikkei 225 Stock Average rose 2.0 percent to 13,811.90.[50] U.S. stocks gained today, with the Dow Jones Industrial Average rising 1.4 percent and the Standard & Poor's 500 Index adding 1.2 percent.[13]
U.S. consumer prices rose at a 4 percent annual pace in the 12 months through March.[11] The March reading was the fastest rise in the core consumer price index since March 1998 when it rose 1.8 percent.[50]
Japan's core inflation accelerated to a 10-year high of 1.2 percent in March due to rising prices of gasoline and food, government data showed Friday.[50]
The London interbank offered rate, or Libor, for dollars fell 1 basis point to 2.91 percent, after touching 2.92 percent yesterday, the highest level since March 7.[14] "I would need to see 10-year Treasuries, to feel kind of OK about it, at least 100 basis points above the inflation rate.''[13]
A growing number of economists predict the Fed will then keep rates on hold to ward off inflation. The Fed has already noted that inflation is among its concerns, and many analysts have warned that further rate cuts would accelerate inflation and devalue the dollar.[2] A halt in rate cuts would indicate either that an economic recovery is in sight, or that inflation is becoming a bigger threat than slowing growth.[21]
Neither scenario makes Treasurys appear particularly attractive. "It seems for right now the financial crisis to some extent has been taken out of the equation," said T.J. Marta, fixed-income analyst at RBC Capital Markets. "Now we're looking at growth versus inflation, and it's a highly contradictory picture. It's probably going to be September before we know which way it's going to go."[21]
Siding with the bond bulls, but being drowned out by cries of inflation was the release of last month's New Home Sales.[49] "Inflation has not been a problem in Japan for many years now and given that inflation is even reaching that part of the world, then it does really bring into focus how big a problem inflation could be potentially going forward," said Orlando Green, fixed income strategist at Calyon. "That's really going to hurt the long-end on the bond curve in the medium term, so that's a big issue for the market."[17]
Fifty percent of the bonds were sold into Asia, 40% into the U.S. and 10% into Europe.[52] The 30-year long bond fell 31/32 to 97 22/32 and yielded 4.52 percent, up from 4.41 percent late Tuesday.[37]
Junk bonds have staged a minirally since mid-March, when Bear Stearns collapsed into the hands of J.P. Morgan Chase and the Fed took new steps to end the crisis.[41] The TSLF program of weekly auctions is one of several new facilities the Fed has introduced in recent months to provide near-term cash to shore up financial institutions' balance sheets, which have been eroded by the ongoing credit crisis.[44] The program, which began on March 17, is one of several extraordinary actions the Fed has taken recently to limit the damage from a trio of crises - housing, credit and financial.[33]
The lending program is one of several unconventional steps the Fed has taken to deal with a credit crisis. Credit troubles worsened earlier this year, driving investment firm Bear Stearns to the brink of bankruptcy and spurring fears other big Wall Street companies could be in jeopardy.[43] "I think the Fed will give some direction and indicate a pause," said Sean Simko, head of fixed-income management at SEI Investments. "The economic conditions continue to worsen, but I think they'll pause and see the effects of the recent easing and all the stimulus added into the economy."[2]
The $59.46 billion was less than the $75 billion worth of securities the Fed was making available.[54] The Fed said the maximum award would be $15 billion and that it would accept Schedule 2 collateral at the TSLF auction, results of which will be announced around 2:30 p.m. EDT (1830 GMT) on Thursday.[44]
The auction was a record in terms of the amount of notes sold, and will be followed on Thursday with a plan to sell $19 billion of 5-year notes.[1] The government today will sell $19 billion in five-year notes, the most since 2003.[14]
The decline in the dollar against the euro and other market-determined currencies has helped boost exports, but the soaring cost of imported oil and imports from China and other Asian countries keep the annual trade deficit in the range of $700 billion. Governments in China, Japan and other Asian export juggernauts intervene in currency markets to keep the yuan, rupee, yen and other Asian currencies artificially cheap, and that subsidizes their sales in U.S. markets and makes U.S. exports too expensive in Asia.[27] "Now the U.S. and Europe are about the same, while Japan's stayed the same, and that means there's no longer any incentive to move money to the U.S.," Wyss said. Problem is, the United States needs to pull in about $60 billion a month to finance its trade deficit, and without the yield incentive, those capital inflows could stop and the dollar take a dive. This has begun to happen over the past few months.[28]
Previous Session's Activity The Municipal Securities Rulemaking Board reported 40,184 trades yesterday of 13,515 separate issues for volume of $20.38 billion.[47] "Right now if you look at mortgage securities, corporates and so on, there's a lot more absolute value there than there is in Treasuries,'' said Stewart Taylor, a money manager who helps oversee about $4 billion in Boston at Eaton Vance Management.[14]
At today's sale, the biggest since February 2003, the bid- to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was $1.65 for every $1 sold. That was the lowest since February 2003, and down from $1.98 in March.[13] Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers, directors, employees and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.[49] Some players, chiefly speculators, apparently sought to close long positions on the JGB futures ahead of the weekend and holidays,' said Akihiko Inoue, strategist at Mizuho Investors Securities.[50]
Two-year note futures are down 10.75 ticks to 106-11 and spot yields up 20.1 bps to 2.391%.[46] The yield on the two-year note was quoted recently at 2.21%, after opening at 2.19%.[47] The yield on the two-year note was quoted near the end of the session at 2.20%, after opening at 2.19%.[45]
The yield on the 10-Year note appears to be trending above 3.75, which will put upward pressure on mortgage rates.[38]
Simply, monetary policy requires public confidence in the banks, and the most important component of the public, fixed-income investors, has little confidence in the banks. In a globalized economy, monetary policy can't boost demand for domestic goods and services if exchange rates are misaligned, and consumers spend a good deal of the money they borrow on imports but exports don't keep up with those purchases. [27] Investors have been concerned about the weak economy's effect on the labor market, and grew a little less worried after the Labor Department said initial claims for unemployment benefits fell by 33,000 last week to 342,000.[21] Tom Petruno has been chronicling financial markets' highs and lows since 1979, and has been the Times' financial columnist since 1990. He writes on markets, corporate finance and the economy, and how it all ties in to individual investors' portfolios.[10] The two pieces of data had investors thinking the economy may not be in as dire circumstances as originally believed. "It is not so much that the durables data was strong, it is that they failed to collapse, which you really need to keep the downside risk (to the economy) story alive," said Michael Englund, economist at Action Economics in Boulder, Colorado.[7]
Inflation expectations in the worlds largest economy have risen over the past month, yields indicate.[5] A flatter so-called yield curve indicates traders are paring expectations for additional reductions in borrowing costs by the central bank.[14] The European Central Banks president, Jean-Claude Trichet, said Thursday that euro-area rates at a four-year high were adequate for curbing price growth.[5] The bidder category that included foreign central banks bought 34 percent of the auction, a six-month high.[14]
The steepest losses during the session pushed two-year yields up above 2.36 percent -- the highest since January -- from 2.20 percent late on Wednesday. [8] "If that is the case, it would not be surprising to see two-year yields rise toward around 2.5 percent," Nagai said.[29]
The 2-year yield fell to 2.20 percent and the 10-year yield fell to 3.74 percent.[1] The price of the 2 1/8 percent security due in April 2010 fell about 1/4, or $2.50 per $1,000 face amount, to 99 17/32.[14] Consumer prices rose at a 4 percent annual pace in the 12 months through March.[12]
The benchmark 10-year yield on U.S. Treasuries rose to 3.86%, from 3.83%, late on Thursday, while the yield on the 10-year U.K. gilt rose to 4.78%, from 4.77%.[28] Since 1995, the T-bond has averaged a 5.2% yield, while the average utility has yielded 4.2." The Forbes article also pointed out that this is the first time since 2003 that the average utility stock (as measured by the S&P; 1500 Utility index) has yielded more than 10-year Treasuries.[24] Equity REITs crossed over from yields lower than Treasuries to yields more than Treasuries in November 2007. That might have been a good time to enter the class, but with all the credit crisis mess going on at that time, we were not prepared to recommend taking that risk.[48]
The yield on two-year Treasuries, more sensitive to changes in borrowing costs than longer maturities, touched the highest in more than three months.[11]
When stocks start to rally, Treasuries may see some defections as investors begin to seek growth and foreign investors look for higher-yielding government instruments. Their safe dividends should provide almost every type of investor with a good night's sleep.[26] Investors also sold off Treasury positions as stocks turned higher during the morning session.[37]
Over the last decade or so, the Treasury Dept. and the Fed have both developed something of a scofflaw attitude toward strict interpretation of federal statutes and regulations.[40] Tracking the market and economic trends that shape your finances. The Treasury is having a harder time selling its debt -- just as it has a lot more to sell, as the federal deficit widens.[10]
In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments as collateral, including certain shunned mortgage-backed securities.[33] The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities had driven up mortgage rates, aggravating the housing slump.[43]
"Given the recent rise in shorter-dated yields, today's auction should attract fair demand," said Hiroki Shimazu, market economist at Mizuho Securities.[31]
The difference between two- and 10- year yields narrowed to 1.43 percentage points, the least since January.[12] While there is not guarantee on the yield of a stock, if a utility with the same yield is purchased, the outcome after 10 years is vastly different.[24] While the stock was purchased for $10 and its annual dividend was $0.37 a share, every year since, the dividend payment increased 10%.[24]
The London Telegraph described the PPT as a "shadowy body with powers to support stock index, currency and credit futures in a crash." It added that the former Clinton aide, George Stephanopoulos, had earlier described the group as having "an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem."[40] Natural gas futures rallied to a two-and-a-half-year high of $10.94 mmbtu after a 24 billion cubic feet increase in underground natural gas storage in the United States for the week ending April 18.[15] Banks, meanwhile, averaged $10.7 billion in daily borrowing for the week ending April 23. That compares with $7.8 billion for the previous week.[32] "Although the $59.5 billion sold is still a sizable amount, it does suggest that liquidity strains could be easing," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.[33]
Bids are due at 1 p.m. on the $19 billion of five-year notes being sold today.[14]
Goldman, Sachs & Co. tentatively priced $176.5 million of revenue bonds for the New Jersey Health Care Facilities Financing Authority.[47] Illinois competitively sold $125 million of general obligation bonds to Citi, at a true interest cost of 4.45%.[47]
The point I'm trying to make here is that guessing which way interest rates are going to go right now is a fools game. [19] I'm in no way saying I know which way interest rates are going to go, in fact I'm trying to say the exact opposite.[19] Don't worry about it. If you want to buy a house, then buy it, but don't not buy it in anticipation of interest rates dropping, because no one knows if they are.[19]
In order to stop the precipitous decline in the housing industry government needs to provide subsidized "Short" loans for the difference between what a homeowner can sell there house for and the amount the homeowner actually owes at rates the homeowner could receive on a regular home equity loan. This will allow homeowners to reevaluate their financial positions to more fiscally sound situations if necessary. As it stands now homeowners with good credit have no other choice than to wait until home values increase before they can have the freedom to seek other housing accommodations. [10]
Similarly rated U.S. pulp and paper companies were trading in the area of 200bp over Libor. (Nine Dragons priced at approximately 420bp over Libor). '''The deal priced with a new issue premium (not small these days), an Asia premium, and a premium for being a new credit,''' says a syndicate banker. '''That is what it took to get it off the ground.'''[52] Consumers' flagging mood is troubling for Wall Street because consumer spending accounts for about 70 percent of U.S. economic activity.[2] Wall Street ended its second straight winning week with a moderate advance Friday, overcoming concerns about consumer confidence and inflation.[30]
The Fed, supported by the banks, will buy equities from mutual funds and other institutional sellers if there is evidence of panic selling in the wake of last week's carnage."[40]
In the wake of the Sept. 11 terrorist attacks, media attention to possible government market intervention and manipulation refocused again -- though less in the United States than in foreign English-speaking media. The London Observer reported, later that September, the Working Group-cum-PTT was "ready to coordinate intervention by the Federal Reserve on an unprecedented scale. [40] Recession after recession has not impressed upon government leaders the reality that the Federal Reserve's monetary policy activities are what lead to market instability.[51]
Piling more public sector regulation on the private sector will have a detrimental effect on the health of our financial system and sow the seeds for the next financial meltdown. What we in Washington should be discussing is increased regulation and scrutiny of public sector regulatory and oversight agencies such as the Federal Reserve Board, the SEC, and others.[51] The auctions come ahead of the Federal Reserve's rate-setting meeting next Wednesday.[37]
The British economy grew only 0.4 percent in the first quarter as the credit squeeze tightens its grip on the. [5]
SOURCES
1. The Associated Press: Treasury market declines amid big2-year note auction
2. The Associated Press: Treasurys tumble as investors bet on end to rate cuts
3. TREASURIES-Slide in Asia, 2-year yield hits 3-month high | Markets | Bonds News | Reuters
4. TREASURIES-Firm stocks outlook, Japanese inflation hit bonds | Markets | Markets News | Reuters
5. Bond prices fall as investors sense credit crisis is easing - International Herald Tribune
6. Foreign cenbanks sold U.S. Treasuries in week -Fed | Markets | Bonds News | Reuters
7. TREASURIES-Bonds fall on signs of economic resilience | Markets | Bonds News | Reuters
8. TREASURIES-Bond prices slide as data fuels rate cut doubts | Reuters
9. TREASURIES-Little changed in Asia, eyes on auction | Markets | Markets News | Reuters
10. What's bad for Uncle is good for many of his constituents : Money & Company : Los Angeles Times
11. Bloomberg.com: Worldwide
12. Bloomberg.com: Worldwide
13. Bloomberg.com: U.S.
14. Bloomberg.com: U.S.
15. Canadian Economic Press - Welcome
16. Can We Trust the TIPS Spread? - Finance Blog - Felix Salmon - Market Movers - Portfolio.com
17. Bond investors bet on rate hikes as inflation looms | Reuters
18. Bonds slide after Japanese inflation scare | Reuters
19. InvestorCentric: 30-Year Mortgage Rates Top 6 Percent As Investors Fear Inflation
20. Investor's Business Daily: Signs Of Life In The Economy Take Toll On Bonds, While Auction Fails To Excite
21. The Associated Press: Treasurys fall after surprising drop in jobless claims
22. TREASURIES-Grim consumers, sour stocks comfort battered bonds | Markets | Markets News | Reuters
23. TREASURIES-Long bond falls 1 full point on stocks, data | Markets | Bonds News | Reuters
24. Utility Stocks vs. Treasury Bonds
25. The Bell Signals It's Time To Buy - April 25, 2008 - The New York Sun
26. The Full Faith and Credit of the U.S. Government
27. Rethinking Fed Policy - Forbes.com
28. Dissipating Bonds Of Fear - Forbes.com
29. TREASURIES-Dip in Asia, two-year yield stays near 3-mth highs | Markets | Bonds News | Reuters
30. Treasuries Fall as Investors Bet Against Fed Rate Cuts - International Business Times -
31. TREASURIES-Sit tight in Asia before auction, data | Markets | Markets News | Reuters
32. Business Briefing- Syracuse.com
33. The Associated Press: Big investment firms pull back on Fed borrowing
34. U.S. may revive 1-year bill as budget gap grows | Markets | Markets News | Reuters
35. MarketBeat Blog - WSJ.com : R.I.P. Bond Rally, 2005-2008
36. Peak Performance: Eye on Yield Spread - Seeking Alpha
37. The Associated Press: Treasury market declines ahead of 2-year note auction
38. US Treasury Yields on the Rise
39. Record US 2-yr note auction garners healthy demand | Markets | Bonds News | Reuters
40. The Plunge Protection Team - The Washington Independent - U.S. news and politics - washingtonindependent.com
41. Free Preview - WSJ.com
42. Business Spectator - On a tighter leash
43. The Associated Press: Fed to auction $75 billion in Treasuries to ease credit woes
44. Fed to undertake $75 bln TSLF auction on Thursday | Markets | Bonds News | Reuters
45. Calif. Market Close: Tax-Exempts Finish Flat - 04.23.2008 - Bond Buyer Article
46. Canadian Economic Press - Welcome
47. Market Post: Munis Largely Flat In Afternoon Trade - 04.23.2008 - Bond Buyer Article
48. A Closer Look at REIT-Treasury Yield Spreads (1971- Present) - Seeking Alpha
49. Inside Futures: Relevant trading-focused information authored by key players in the futures, options and forex industries
50. Japanese government bonds end morning sharply lower - Forbes.com
51. Government Failure Is Endemic "The Economic Outlook" - Folsom
52. Nine Dragons spells good news for bond market - General - FinanceAsia.com - The network for financial decision makers
53. Free Preview - WSJ.com
54. The Associated Press: Fed auctions $59.46 billion in Treasury securities
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