Gold up. Stocks down. Treasuries getting dumped. Let’s try to figure it out.
Yields on the long-end of the curve ($TYX, $TNX) dipped to an all time low (over 5 decades) in December on the day Feds announced ZIRP. It has been downhill for the tr treasuries ever since. As the yields are creeping up, so are the mortgage rates. Bond pro John Jansen has this to say yesterday (emphasis mine).
…I thought that the street would force the Fed’s hand regarding purchases of Treasuries. The debacle in the Treasury market has erased the gains in the mortgage market. The Fed will not wait long to buy Treasuries as dilatory action will only lead to higher mortgage rates.
Despite Feds’ statement on buying long-end T-bonds, somebody is SELLING treasuries. Stocks are following treasuries down. But this time, gold is giving a thumbs down to the Feds (recall my post two days ago).
Decision time for the Feds.
- Buy long-dated bonds to bring mortgage rates down. Or,
- Let the yields rise a bit so that new issues to finance the stimulus plan will attract some demand.
Looks like if you do #1, you are doomed. Or, do #2, you are doomed. I don’t know what they will do.
While things are bad with treasuries, CDS spreads on corporate junk are also rising across the spectrum. CDX.NA.HY closed today at 1,420.0 from low 1300 last week (Nov panic high was 1525) and iTraxx Europe Crossover at 1078 (panic over 1300). CMBX.NA.AAA.5 (spreads on CRE bonds) is not that alarming – it came down from a high near 700 some 10 days ago to near 520 yesterday and closed today at 595. Not at panic levels but getting there.
Unless the stresses are relieved, I doubt if stocks can stage a rally. As John Jansen pointed out, we may see Feds start buying treasuries which could give a temporary bump to markets. Then what?
If you are short, look for a violent rebound in bonds to confirm any buying by the feds. That which could exert some short squeeze in stocks. I expect it to be short-lived, may be a month.
We are so close to the brink. We are at a point where that’s all it takes, someone selling off some treasuries. We know China and Russia need us to be healthy right now, but it still makes ya feel a bit vulnerable. What happens if they dump? We don’t have enough ink to run the printing presses for that scenario.
Mohan, very interesting, as always. Appreciate your insights into the credit markets. From an EWT perspective, US Treasuries look sure to go back up. EWI’s chart on 30 year treasuries (and my chart on TLT, 20+ year Treasury ETF) show a wave 4 correction that is completing, and thus a fifth wave up coming. Guess the Fed will be buying.
Hey Mohan. Good read. Your international perspective is always appreciated. Missed your posts today (friday) – hope to see you back on the board Monday.
Any thoughts on the internet chatter that a fair amount of the TARP funds went to China and Russia to dissuade them from dumping portions of our T-Bills?
Thanks Valerie,
I did not see any correlation between the time spent in watching the markets and my portfolio performance. If there is any, there is an inverse correlation.
So, I see no point in keeping my eyes glued to the monitors.
Seriously, I have a day job and other ‘important’ things to do on Fridays – be an RJ and commentator on my own internet radio show, on a radio channel I ‘manage’.
And that radio show is…..?
It is about ethnic music in Telugu language, and the life of expatriot Indian in US. You won’t understand anything except for an occupational English conversations
http://teluguoneradio.com/tori/lahari.jsp
one thing i know for sure. if this market does not take a serious slide this month there is something very fishy going on. really have to stop watching CNBC as it is giving me bouts of Nausea. of course, we already know something fishy is going on so whatever.
why did i sell my remaining SRS today? there is no way on gods earth we are going to bounce up on Monday. im just putting my remaining cash in SRS on Monday and kicking back a bit for the February slide. this day trading is wearing me out
Bears are lazy.
in December i gave us a 5% chance of getting out of this mess by 2011. id like to revise my estimate like the government always does. now, give it a 0.2% chance.
3 AM? I thought we were in the same time zone. If so- get some sleep!. Monday’s gonna be a big day and we need you rested up with the artillary.
Bears take heart: http://seekingalpha.com/article/115525-the-scariest-chart-ever?source=article_sb_popular
FLguy, great reference – a very good read at Seeking Alpha. Thank you.
Man, looking at one year chart for TLT. It look so awesome. It looks like a big double M with all the correct retracement