Friday, May 29, 2009

Treasuries: Have you ever heard the tragedy of Darth Plagueis the Wise?

I remain a believer in lower interest rates. I remain of the mind that deflation is a much bigger risk than either inflation or the dollar (which is a correlated risk anyway). Still, today's move had a lot to do with month-end rebalancing. The duration of the Barclay's Aggregate has risen from 3.73 on 3/31, to 3.96 on 4/30 and now to 4.33, all on MBS extension. The MBS portion of the Agg has moved in duration from 1.54 on 3/31 to 2.22 on 4/30 to 3.16 now.

So unless rates follow through on Monday, its debatable whether this rally is real. Again, I think the thesis is in tact, but I don't know whether the market believes it or not.

Month-end buying was also highly evident in the corporate market. I came in to do some buying myself and found offerings were like pulling teeth. Since I'm not married to month-end reporting like a lot of people, I decided to roll the dice and see what the market felt like on Monday.

And the stock market? I've seen some month-end window-dressing rallies, but today took the cake.


In Debt We Trust said...

Last 15 minutes was wild. You should've seen the action in CBOE June Vix calls and puts.

Per treasuries, I heard rumors of intense Japanese bargain buying on the long end of the curve. Is that true?

GS751 said...

I trade the /ES during the week but pretty much dont dont do anything friday afternoons > 3PM, I get a call from a daytrader friend of mine that says "Get to your screen"

Unknown said...

How is deflation a much bigger risk than inflation? It's worse for the government and the wealthy. Prices need to come down.

The risks associated with reflating the economy are certainly worse than allowing the natural course of debt-deflation to run its course.