Wednesday, October 07, 2009

Treasury yields: He steps off the gantry platform

I know most readers don't want to hear this... but look objectively at this chart.

Aren't yields going lower? We're sitting on the 200 day MA, we're well through any other moving average. Any way you slice it, we've got lower lows and lower highs. Demand for today's 10-year auction was very robust. The bid/cover was 3.01x, the second highest in the last 15 years. Foreign demand for Treasuries is as strong as ever.

To top it off, every one hates rates here. Of economists surveyed by Bloomberg, only 3 out of 54 respondents expect rates to be lower at this time next year. Now I'm not sure I think rates will be this low 12 months from now, but it seems like rates will keep rallying from here. I'm targeting 3.05-3.00% on 10s.


Advant Guard said...

With the Treasury intending to sell fewer T-Bills, there is a lot of room for longer term Treasuries to move down as the wave of cash moves from T-Bills to 2-yr and 3-yr notes. The truth is, and this sounds stupid in a year when the deficit is over a trillion dollars, we have a shortage of Treasury securities. Actually, the shortage has existed for years and so Wall Street tried to create substitutes using mortgages and credit-default swaps: FAIL!

Accept no substitutes: get your Treasury Bonds while they last.

In Debt We Trust said...

On the weekly chart, TNX looks like a head and shoulders pattern is developing. Will the 50 MA maintain support?

Well, last winter says no but it was also a period of forced liquidation.

However, I would not be surprised if fund managers loaded up on treasuries towards the end of the year. Especially if they don't trust the equity action.

After all, regulators still haven't decided what is an adequate capital ratio for banks. Will banks mark up their ABS per Bernanke's artificially imposed buying spree?

We got a confusing mish-mash about 6% ratios from the Europeans last week but nothing solid from the Americans yet. All we know is that banks are still sitting on big losses.

SBTrades said...

"Foreign demand for Treasuries is as strong as ever."

What tells you it is foreign demand? Why could it not be the US buying it themselves?

Accrued Interest said...

Short: Look at the TIC data! It isn't a theory. Its a fact.

In Debt We Trust said...

What about agencies? Zerohedge explores the story further:

A half an hour turnaround time between issuance and buyback? Really Ben?

No wonder the goldbugs are jumping up and down. DXY 72 here we come.

Anonymous said...

Looks like short term tresuries under 2 years are mainly used for speculation and not application of capital given a 1% return is not worth the time to most companies/persons.

Accrued Interest said...

On the Zero Hedge piece... this stuff drives me absolutely crazy. I don't know why I feel so driven to respond, but respond I must. I'm going to write a full post on this.

Jodi said...

"I'm targeting 3.05-3.00% on 10s"

Has the run up in the yield over the last couple of trading days changed your target?

Thanks, I enjoy your work here.