The Insanity Continues - Stuck In The Mud

TREASURIES-Bonds fall as Greece takes steps needed for bailout

 With Greece likely to clinch financial relief soon, the
market focus turned to the final leg of the government's $72
billion quarterly refunding this week.	
    A mediocre 10-year sale on Wednesday raised concerns about
the appetite for the 30-year bond offering, even as the Federal
Reserve has been buying longer-dated Treasuries in an effort to
hold down mortgage rates and other long-term borrowing costs. 	
    In the "when-issued" market, traders expected the $16
billion worth of new 30-year issue would sell at a yield of
3.202 percent in midday trading. That would be
the highest level since the November auction and above the
record low yield of 2.925 percent set at December's auction. 	
    On Thursday, the Fed bought $4.95 billion in Treasuries due
in 2018 to 2019, as a part of its $400 billion "Operation Twist"
program designed to push down long-term interest rates and spur
the economy.	
    The 30-year bond was down 25/32 in price at
98-25/32 with a yield of 3.19 percent, up 4 basis points from
Wednesday's close. 	
    The 30-year yield is testing a "triple-top" support in the
3.18 percent area. If it closes above this level, some analysts
say it is poised to rise further and test the 3.45 percent
level, the next major chart support.	

Reuters

Trigger-happy central banks spark bond euphoria

Corporate bonds have enjoyed a spectacular rally over the last month as central banks flood the world with liquidity, and cash-rich companies bask in glory as gilt-edged assets.

"Stephen Jen from SLJ Macro Partners said the double blast of a "trigger-happy Fed" and an activist ECB has transformed the outlook for global assets this spring. "All investors should respect the rule 'don't fight the Fed'. A new rule is 'don't fight the ECB'. Certainly the market should not fight the Fed and the ECB at the same time," he said."

UK Telegraph

We came very near to a bond market sell-off, but then this was curtailed at the last minute by further disagreement on the disagreements in Greece. A Greek default will have some really unintended consequences everywhere. Bond markets, corporates, gold, equities. Strange to say that money is going into corporates, but that long dated treasuries are actually bouyed in this scenario.

Even with abysmal results on the long dated treasury auction, where yields were closed as high as 3.24% on Feb. 8, the market ignored this, preferring to focus on the Eurozone.

-F6