One post a Day keeps the Sovereign Bonds Low

One post a day keeps the doctor away...it's my fifth post in a row this week. Blogging has put me up to speed after a pretty inactive summer period in trading (and I’ve to confess, a losing streak) and while the benefits of blogging on my trading account are not really evident, I enjoy!

One of the major facts this week on the markets that I've not discussed yet is definitely the govies bonds yields hitting record lows (meaning bond prices increase as they are inversely proportional to yields). In particular in the long term part of the curve, the 10-Y bond yields in the US, UK and Germany are now all below 3%. The causes of such a strong bid are likely to be sought among a list well covered by the press and the analysts : fear of double dip, safe haven bid, prospects of deflation and Central Banks rates close to zero for a more "extended period" than initially expected,… In the UK, the comments from Martin Weale, the newbie at the Bank of England's monetary policy committee (MPC), that the UK faces a "real risk" of a second recession definitely helped the move down. It looks like the guy hasn't completed yet the "Master the impact of your Rhetoric" course of the BoE induction pack… On the US side, the QE-light seemed to have had an impact on the move too, not only due to the mechanical impact of the purchase by the FED but also because it looks like it has not worked as expected, the markets slumped since it was announced pushing higher the bid for the Treasuries safe haven... We'll see what happens later today at Jackson Hole (weird name)...

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Of course at the moment I post about the rise (in price) of the treasuries, they fall...

Treasuries Fall as Bernanke Pledges to Add Stimulus as Needed
2010-08-27 14:44:06.672 GMT


By Cordell Eddings
Aug. 27 (Bloomberg) -- Treasuries tumbled as Federal Reserve Chairman Ben S. Bernanke said the central bank will provide additional stimulus as needed, reducing speculation that it would step up bond buying.
The yield on 10-year note increased the most since June.
U.S. debt earlier fell after a report showed the economy slowed in the second quarter less than analysts forecast.
“The market was expecting the Fed to possibly purchase more Treasuries, and Bernanke is telling us he’s not willing to buy a ton more Treasuries yet,” said David Zervos, global head of fixed-income strategy at Jeffries Group Inc., one of the
18 primary dealers that trade directly with the Fed. “We are seeing longer-term debt sell off and a bit of a steepening on the curve.”
The yield on the 10-year note increased 11 basis points, or 0.11 percentage point, to 2.58 percent at 10:38 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 dropped 1 point, or $10 per $1,000 face amount, to 100 9/32. The yield slid on Aug. 25 to 2.4158 percent, the lowest level since January 2009.
The two-year note yield gained 1 basis point to 0.53 percent and headed for a weekly gain of 4 basis points after touching the record low 0.4542 percent on Aug. 24. The 10-year note’s yield was poised for a weekly drop of 3 basis points.

‘Too Slow’

Bernanke gave a detailed analysis of the economy and said growth during the past year has been “too slow” and unemployment “too high.” He also said a handoff from fiscal stimulus and inventory re-stocking to consumer spending and business investment “appears to be under way.” He said that the “preconditions” for growth in 2011 are “in place.”
“The Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” the Bernanke said today in opening remarks to central bankers from around the world at the Kansas City Fed’s annual monetary symposium in Jackson Hole, Wyoming.
Economic growth slowed less than expected to a 1.6 percent annual pace in April through June, compared with the 2.4 percent rate projected last month, the Commerce Department reported. The median forecast of 81 economists in a Bloomberg News survey was for a 1.4 percent expansion. The world’s largest economy grew
3.7 percent in the first quarter.

Outlook for Yield

The 10-year note yield will rise to 3.13 percent by year- end, according to the average forecast in a Bloomberg News survey of banks and securities companies, with the most recent readings given the heaviest weightings. None of the 71 companies predict a decline from today’s level.
The Fed said on Aug. 10 that U.S. growth would be slower than anticipated and announced it would buy Treasuries to set a
$2.05 trillion floor on its balance sheet and keep interest rates from rising.
Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., said the economic data are “alarming” in an opinion piece in the Washington Post. Pimco, based in Newport Beach, California, runs the world’s biggest bond fund.
Unemployment is high, consumer credit is shrinking and small companies are having trouble obtaining lines of credit, wrote El-Erian, who is also Pimco’s co-chief investment officer.
“Throughout the summer, data signals have become more alarming,” he wrote. “Current policy approaches here and abroad are unlikely to deliver a durable and robust U.S.
recovery.”
The yield difference, or spread, between 2-year notes and 30-year bonds increased to 3.02 percentage points on eased concern the economic recovery is stalling. It touched 2.99 percentage points yesterday, the narrowest since April 2009.