Bond Music playing

Gross at Pimco says "dump bonds" (down from 50% allocation to 30%). He Expects inflation to soar due to treasury sales becoming more difficult and costly), and less support from sovereign entities (who if they buy at all will do at higher yields) Every one knows that Fannie and Fred have a 7 Trillion dollar problem called toxic mortgages. That Congress must deal with (HOW?) This announcement alone is moving markets.

That was a month ago. Last week Bernanke says no interest rate increase until may 2011. (election in Nov '10 you know)

Today the trades are coming across the board, the hedges on bonds are being closed. The result is bonds are rising, but probably not for long. The fixed income market is confused and is likely to rise in price (but fall in yield for a time - short run), then reverse as the Treasury attempts to roll 1.2 Trillion in the short end of the curve. Stocks = up short run, then real competition from rising bond yields (Fed model talk : compare bond yields to equity yields).

Keep your eyes on the bond market, they are always smarter than equity managers in the short run anyway.

Best, Islander

PS. I do trade bonds and I am short from the middle to the top of the curve.

US Bonds are going up because the bonds in the Eurozone are in trouble, the debt buyers are looking for better alternatives and US Bonds look better to some people at the moment... This entire rally is due to the Euro's collapse and Fed's response, imho. PS. I do trade bonds too and I would not sell short the US bonds until Euro finds a bottom, the capital will continue to leave European debt for sometime...

Edited by arbman, 12 April 2010 - 11:14 AM.

The chart on 10yr looks like one more rally to just under 3.40 yields then bye bye interest rates are off to the races north.

Too easy. For longer run analysis, not daily undulations, its the US problem that drives our markets. Look at the cash requirements of Gov't borrowing (now and prospective) and the treasury's inability to meet the number (especially if yields don't rise). This has little to do with the EU, it is US policies and their outcome that matters to refinancing our debt. The Euro and Greece are off the table compared with what the US must manage over this next year and every year thereafter. Best, Islander

Butterfly effect global now. I think your both correct. in the st we could see 4.20 yield then the rally.

Too easy. For longer run analysis, not daily undulations, its the US problem that drives our markets.

Look at the cash requirements of Gov't borrowing (now and prospective) and the treasury's inability to meet the number (especially if yields don't rise). This has little to do with the EU, it is US policies and their outcome that matters to refinancing our debt.

The Euro and Greece are off the table compared with what the US must manage over this next year and every year thereafter.

Best, Islander

Islander, yes, it is NOT that easy!

I agree that the problems in US are just as bad and they are just another time-bomb, but the problems of Europe are just beginning to emerge and they thought they had no such problems compared to the colossal bond collapse in US.

They are yet to deal with their sub-prime COUNTRIES and the total liability that needs to be (re-)financed is north of $7T. So, US has already kissed the floor while Europe is yet to find the floor of their problems. This is how I see. This change in paradigm that European debt was not as safe as initially thought provided the automatic lift to the US markets as the capital left Euro-zone in panic and has been leaving since winter...

The capital have no place to go since they are all paper gains and there are not enough real assets to hide for the billions, EVEN CASH IS NOT SAFE. WHY? Because we are operating under the constantly depreciating currencies due to the reflation efforts of the central banks and there is not enough gold for everyone to buy because we already abandoned any standard that set the value for the currencies. Basically, the whole thing is deflating as there is not enough supporting value and relatively speaking some stuff is bouncing better for a while.

Eventually, either the currencies will be significantly devalued pushing the yields higher to sustain the equity gains for a little longer, or the equities will simply deflate and find the balance with relatively lower yields. The bottom line is we are simply numerically assigning a new value to the goods produced, but it doesn't make them more valuable. Whereas, the monetary policies rather work to take away from the majority in terms of life standards (by pushing the prices up and income down) to sustain that numerical (inflated) value and this is wherein lies the big problem of sustainability of such valuations.

In return, the people are benefiting from the BS currently going on by keeping their jobs for a little longer, but a few rich people who would like to see their paper profits be sustained are the real winners...

Very Best,
-arb

Edited by arbman, 12 April 2010 - 02:54 PM.