December Treasury Bonds posted the rare daily/weekly closing price reversal top this week. On Wednesday, the T-Bonds formed a daily closing price reversal top and on Friday, the market sold off far enough to form a weekly closing price reversal top. Both of these chart patterns suggest that the selling is greater than the buying at current levels.
U.S. Equity markets are under pressure this morning as sellers showed up after Japan reported a weak GDP figure. Treasury Bonds are trading higher in response to the possibility of a weaker global economy.
Tuesday afternoon the Fed announced it was keeping its balance sheet intact while changing the composition of said balance sheet by moving out of mortgages and into long-term Treasuries. This news triggered a strong surge in the Treasury complex, sending the September Treasury Bond to a new high for the year. The move by the Fed is designed to keep the pressure on long-term rates.
Once upon a time (long before Quants, Swaps, and million dollar bonuses) investors knew that they could not know "what the market will do"--- in direction, duration, range, or vacillation. They recognized that neither humans nor human created machines could predict the future with any degree of accuracy. So they learned how to deal with uncertainty.
That’s right I said it – short the 10-year treasury notes. They have been on a huge upswing of late and there will come a time when interest rates HAVE to rise to counter balance the debt structure of the US. It’s not going to happen overnight, but after nearly every single recession bond prices eventually fall hard.
September Treasury Bonds posted a loss on Friday, most likely tied to profit-taking ahead of the long holiday week-end and the lack of selling pressure on the equities. Friday’s action appears to be just a temporary slow down in the trend. The weakening economy is likely to continue to underpin the Treasuries.
The EUR USD is posting a strong gain this morning after Spain announced that it had sold out $4.3 billion of five-year bonds. The news is evidence that appetite for government debt is still strong and that perhaps the fear of holding European sovereign debt risk may be abating.
Bank of Japan Deputy Governor Kiyohiko Nishimura discusses "informational advantage" this week at the Lujiazui Forum on economics and finance in Shanghai:
Unlike conventional mutual funds, CEFs do not issue and redeem shares directly with investors at net asset value. CEFs are listed on national securities exchanges, where shares of the Investment Company are purchased and sold in transactions with other investors, just like individual company stocks, and most often not at net asset value.
T-Bonds are trading weaker this morning because of the firming equity markets and the $21 billion U.S. Treasury debt sale. There is also rising speculation that the Fed may be preparing to raise interest rates. On June 7th, Fed Chairman Bernanke said the Fed will hike before the economy returns to full employment.
