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Bonds getting crushed today

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Big sell call by Goldman this morning.

 

Morgan Stanley sticking to its 1% GDP call for the 1Q:12.

 

 

http://www.bloomberg.com/news/print/2012-03-14/treasury-10-year-yields-rise-to-highest-in-four-months.html

 

Treasury 10-Year Yields Rise to Highest in Four Months

By Daniel Kruger and Susanne Walker - Mar 14, 2012

 

Treasuries declined for a sixth day as the Federal Reserve’s raising of its assessment of the U.S. economy reduced the refuge appeal of U.S. government debt at a $13 billion auction of 30-year bonds.

 

The securities were sold at yield of 3.383 percent, the highest since August. The Federal Reserve’s 21 primary dealers that are required to bid at the sale were awarded 56.3 percent of the securities, compared with an average of 52 percent for the past five sales.

 

“The Street bought a large amount in the auction and there wasn’t as big of a customer bid here so they are a little long,” said Thomas Connor, president and head of trading at Pierpont Securities Stamford, Connecticut. “The Fed made no mention of QE3, and no additional twist. Employment is doing better. We will have to make a fundamental yield adjustment.”

 

The yield on the current 30-year bond rose 14 basis points to 3.41 percent, at 1:29 p.m. in New York, according to Bloomberg Bond Traders prices. That’s the most since Oct. 28.

 

The benchmark 10-year note’s yield climbed 15 basis points to 2.28 percent, the most since Oct. 31.

 

Today’s high auction yield compared with a forecast of 3.393 percent in a Bloomberg News survey of eight primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.7, compared with an average of 2.63 for the previous 10 sales.

Bidding Measures

 

Indirect bidders, a class of investors that includes foreign central banks, bought 29 percent of the bonds. That compares with an average of 31.2 percent for the past 10 offerings.

 

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 14.7 percent, versus an average of 16.5 percent for the past 10 auctions.

 

U.S. 30-year bonds have lost 6 percent this year, compared with a 0.9 percent decline in the broader Treasury market, according to Bank of America Merrill Lynch indexes. Long bonds returned 36 percent in 2011, more than triple the 9.8 percent gain by Treasuries overall.

 

The Fed refrained yesterday from new moves to cut borrowing costs, saying the U.S. labor market is gaining strength.

 

“The unemployment rate has declined notably in recent months but remains elevated,” the Federal Open Market Committee said in a statement at the conclusion of a meeting. It also said “strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.”

'More Upbeat’

 

“Very few were expecting the changes that we got from the Fed’s language yesterday, so the fact that they were a little more upbeat was a negative for Treasuries,” said Anthony Cronin, a trader at Societe Generale SA in New York, another primary dealer. “It helped break us out of the range that we’ve been in for the last four months or so.”

 

Volatility rose from the lowest level in more than four years. Bank of America Merrill Lynch’s MOVE index, which measures price swings based on options, increased yesterday to 73.8 basis points, up from the previous day’s 69.9 basis points, the least since July 2007. The gauge rose as high as 117.8 on Aug. 8. The reading means traders expect a yield range of 73.8 basis points on an annualized basis in the next month.

 

Valuation measures show government debt is becoming less expensive. The term premium, a model created by economists at the Fed, was negative 0.44 percent today, the least since October. The figure touched negative 0.79 percent on Feb. 2, the most expensive ever, and compares with the average of positive 0.56 percent over the past decade. A negative reading indicates investors are willing to accept yields below what’s considered fair value.

Goldman Says Sell

 

Treasury market volume rose yesterday to the highest since Feb. 29 amid the Fed’s assessment of the economy. About $339 billion of Treasuries changed hands through ICAP Plc, the world’s largest interdealer broker, compared with the one-year average of $268 billion.

 

Investors should sell 10-year Treasury futures as economic conditions “continue to gradually improve,” according to Goldman Sachs Group Inc.

 

Futures expiring in June may fall to 126 from an entry point of 129 17/32, Francesco Garzarelli, co-head of fixed- income strategy in London, wrote today in an e-mailed report. Investors should end the trade should the securities close above 131 1/2, he said.

 

The 10-year break-even rate, a gauge of the outlook for consumer prices derived from the difference between yields on conventional and inflation-linked bonds, rose to 2.39 percentage points, a level last seen on Aug. 2.

 

A measure of traders’ inflation expectations that the Fed uses to help guide monetary policy was at 2.5 percent, the highest since March 1 and down from 3.23 percent in August. The five-year, five-year forward break-even rate, which projects annual price increases over a five-year period beginning in 2017, is below its 2.76 percent average during the past decade.

 

-- Editors: Greg Storey, Dave Liedtka

 

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

 

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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I guess gold's peaked for the foreseeable future then ?

the $2000 mark was a pipedream ?

 

Nah. Undergoing correction.

 

Long -term price target is $50,000 per ounce - no joke.

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Learned something new today. Japanese are net sellers of overseas notes and bonds in March. Then are net buyers in April. Weird seasonality having to do with new fiscal year (most Japanese are on a March 31 fiscal year end).

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Another sign the economy is warming. Or something else?

 

From the activity I am seeing I would say things are indeed warming. If Morgan Stanley was predicting 1% GDP for the first quarter a while back I think they are going to be wrong..... I don't know when that call was made but specifically the last 1 and half months there has been a sizable bump in activity in my industry(meaning not just our company).......

 

John

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From the activity I am seeing I would say things are indeed warming. If Morgan Stanley was predicting 1% GDP for the first quarter a while back I think they are going to be wrong..... I don't know when that call was made but specifically the last 1 and half months there has been a sizable bump in activity in my industry(meaning not just our company).......

John

 

Yes GS predicted 2 percent 1st Qtr GDP and just lowered it to 1.8 percent GDP which is MUCH better than the 1 percent MS is predicting.

 

At 1.8 percent we'll be out of this mess in no time.

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From the activity I am seeing I would say things are indeed warming. If Morgan Stanley was predicting 1% GDP for the first quarter a while back I think they are going to be wrong..... I don't know when that call was made but specifically the last 1 and half months there has been a sizable bump in activity in my industry(meaning not just our company).......

John

 

can you share what industry ?

 

are you increasing headcount ?

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can you share what industry ?

are you increasing headcount ?

 

Electronics manufacturing. We are almost always the first ones to feel a recession coming on and we are almost always the first to feel things heating up. Of course nothing is set in stone but that's the way I am seeing it right now. Everything we make ends up in almost every sector of our economy..........

 

I think if GS is predicting 1.8 that we'll actually come in a tad better than that. I don't trust GS and I could totally see them lowering their estimate to 1.8 so when it's announced 2% the market will get a pop and of course they will have positioned themselves well before that...... I saw 1 guy the other morning saying he think it's actually going to be closer to 3%.... Think about it though. If GS or MS or anyone is wrong on their prediction what difference does it make? They might as well be weather forecasters because it doesn't matter if what they announce is right/wrong or close or far off. It's what they are doing behind closed doors in their positioning that matters and we won't know that til after the fact anyway if we find out at all.....

 

John

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Yes GS predicted 2 percent 1st Qtr GDP and just lowered it to 1.8 percent GDP which is MUCH better than the 1 percent MS is predicting.

At 1.8 percent we'll be out of this mess in no time.

 

Let's set aside the forecasts - which can be notoriously hard to pin down with accuracy.

 

We are in the midst of a slow down.

 

China is experiencing a hard landing - NOW.

 

Europe is in recession - NOW.

 

This has nothing to do with Obama or Dems vs. Reps - how many times in history have we had a global slowdown and the US didn't slow down as well?

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This has nothing to do with Obama or Dems vs. Reps - how many times in history have we had a global slowdown and the US didn't slow down as well?

 

I agree the world economy doesn't look good right now. I can really only speak to what I am seeing....... Take a look at car sales as well in the US. It's hard to explain but it's happening.........

 

John

 

 

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I agree the world economy doesn't look good right now. I can really only speak to what I am seeing....... Take a look at car sales as well in the US. It's hard to explain but it's happening.........

John

 

Car sales = catch up of pent up demand from crisis years.

 

Anyways, we've seen bursts of activity, including employment, right before a recession hits. The last recession which started in Dec 2007 is one example.

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Car sales = catch up of pent up demand from crisis years.

Anyways, we've seen bursts of activity, including employment, right before a recession hits. The last recession which started in Dec 2007 is one example.

 

Exactly...... But if you have pent up demand for cars you probably have pent up demand all over our economy. Take a look at China... Any pent up demand over there? Take a look at Europe... Any pent up demand over there... I don't think so. Both those places have problems outside of just demand. China's currency appreciation, albeit not a huge change has hurt their export sector. I see that with customers now who are looking elsewhere to have production products made. The fear is that their currency will appreciate further and at some point it makes zero sense being there. If your a company making stuff there now your gonna stay because of the money you have invested. If your a company not already in China you missed the boat on start up costs and the price difference anymore taking into account the total cost isn't nearly as good as it once was. Europe has been cutting back for a while now so there might be some pent up consumer demand but the fact remains over there the people still feel like the cliff is near. Their consumers are not anywhere near wanting to spend. Some people might say that while the US was pumping out koolaid and Europe was trying to give a dose of reality that the koolaid has helped our economy out while Europe is stuck stagnating......

 

I guess the real question is the track we're on sustainable? If the US economy bridges the gaps this year and misses the recession around the world where does that put the US when the rest of the world catches up and comes out of recession?

 

I have been a recession is coming kind of guy for a while now but I admit my personal view on our economy hasn't been this good for a long time.

 

John

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