Bonds ready to rally?

S

steveosborne

The global market consensus expressed this week by stock, bond and commodity prices is that economic growth is threatened by high gas prices and by the Fed’s reaction to inflation. Oil prices have been going down steadily lately but the main concern is about the Fed’s reaction, a typical thing in the days preceding the release of employment data or FOMC meetings. Employment data will be released tomorrow and the bond market has been getting ready for this by integrating fears of higher interest rates over a period of several weeks.

The stock market is now showing signs of weakness; oil has been going down from $70 to $60; and the bond market has been going down steadily for 4 weeks. In that context, the Fed has less pressure but also less room to increase interest rates so my bet is that even if the employment numbers are high, the bond market will find itself already saturated with pessimistic information. If employment is particularly high, bonds are likely to dip and come back at the end of the day or Monday.
 
me thinks the Fed. is trying to stave off a dollar crisis............

along with all the other hassles................

Katrina and Rita may be enough to open a few cracks in what we call capitalism which is now turning into galloping socialism
 
yes, i think 10 years and 30 years rally. i think the fed would like to raise rates, but will only be able to get one, maybe two more hikes before we get an inversion. heck, they might even continue raising, but they'd be crazy.
 
btw,

few people I talk to believe in the validity of any economic data coming from the government............

I look forward to PPI and CPI numbers for a good laugh....never fails......
 
I think the markets may have been a little premature in pushing bonds down, especially when most of the fear has been generated by federal officials and only two reports so far. So of course I wouldn't be suprised if we retrace back a little, we might even see the 10 year go back below 4%... But the real question is whether the long term trend is down or up, I say we're in the midst of a long term rise in yields, and the Koreans no longer willing to support the U.S.'s debt.
 
with foreign banks subsidizing our ridiculous government, the fix is in...................

Fannie Mae, once the great, is but 40 points away from the abyss....

the country never really recovered from 911 and the stress cracks are widening...........

Greenspan stayed a year too long, for reason I know not why...
 
i'm a big bond bull. i figure we're in a deflationary spiral... "but"...a dollar crisis will probably spike rates. that leads me to a scenario, and a question.

if global growth slows, and banks in foreign country start having trouble at the same time the dollar is depreciating, won't this cause a sell off of dollar denominated debts? my thoughts are that this is pretty viable scenario. a diminishing dollar value would strangle a central bank's capacity to lend its FX reserves to delinquent banks, staving off bank runs and deflation.

to avoid a crisis, central banks would diversify reservous out of the dollar, driving the dollar down further and spiking rates, but ironically intensifying the original problem.

this bond spike scenario seems pretty viable. any historical precedents?
 
If big AL Greenspan is lying awake tonite in the fetal position, he's worrying about a crisis where major derivative counterparties go tits up...............

and the great unwrapping begins...........

the oil trade came off today and gold refuses to drop...........

an opinion of course................
 
the gold issue is pretty interesting. IMHO, ppl that claim its signaling inflation have it wrong. people are buying because when the dollar standard goes kaput, where better to be than the currency that is no one else's liability.
 
Quote from killATwill:

yes, i think 10 years and 30 years rally. <font color=red>i think the fed would like to raise rates, but will only be able to </font>get one, maybe two more hikes before we get an inversion. heck, they might even continue raising, but they'd be crazy.
More...
Treasuries right now are more sensitive to the <i>freedom</i> the Fed has to increase interest rates than <i>pressures</i> on the Fed to increase interest rates. I've been watching the bond market's reactions to stock and oil prices on an intraday basis and noticed that bonds didn't care about oil going up or down (as a proxy measure of <i>pressures</i> to increase interest rates) but moved inversely to stock prices, indicating fear of the Fed's <i>freedom</i> to maneuver.

So, now that the stock market is also moving on fears of higher interest rates while bonds have already been going down for a few weeks on the basis of those fears, we could witness in the event of high employment statistics the following chain reaction:
employment (UP) -> stocks (DOWN) -> bonds (UP)
Conversely, in the event of weaker than anticipated payroll numbers we could have:
employment (DOWN) -> stocks (UP) -> bonds (DOWN)
That would be <b>unusual and contrary to normal expectations</b> but consistent with recent behavior.
 
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