Treasurys are getting killed again
You have probably seen stocks down today. The dow is off nearly 200 points and the Nasda is down 50. But, everything American is getting whacked today. The U.S. dollar, stocks, and bonds. Look at the chart on Treasurys here – especially the long end.
Something is happening in terms of how investors see the risk of holding dollar assets. This is not just about jobless claims or Fed data. Perhaps, it is the potential downgrade of U.K. sovereign debt. But, the Pound is holding its own, so that’s not it.
Let’s see how the market trades at 4PM. If it sells off at the end of the day, that is a very bad sign.
Ed – I thought the Fed were going to manipulate the bond market all the way along the curve? If this is the result, god help us when they stop doing it!
Bill Gross was out earlier saying it was the negative ratings watch for UK Government debt which triggered the sell-off as the U.S. is see in a similar light. This only points out the hazards of deficit-financed recovery.
As for the Fed, despite the zero bound showing an easy money policy, they have not grown their balance sheet in months. It is still unclear how much QE or credit easing they are actually doing.
FED has to do something dramatic in the following week or so. The long bond has dropped and this is not good for the long term interests, i.e. not good for house market recovery.
As the share market rallies, most of the too big to fail banks are getting enough cash from the market by various means. The recent rally is just to give an opportunity for the banks to grap money. Once they have absorbed enough, FED has no reason not to push the bond interest down again.
Edward,
German government bonds are getting killed too. They are now yielding 355 basis points. I think it has to do with the entire developed sovereign bond market and it is not directly related to dollar demoninated assets since it is affecting the Euro demoninated safe haven.
What are the fundamental differences between German government bonds and US Treasuries?
Well, politically, Trichet is likely to accept deflation as the German’s are afraid of hyperinflation, and a welfare state is likely to ease the harm caused by deflation. Also, the collapse of the property bubble in the Iberian penisula is also deflationary and I wonder how much European banks are damaged by that. Perhaps, the deflationary forces are more powerful in the US than in the EU without any intervention.
I do not know what precisely is happening, but maybe investors want riskier assets now, or they are going to gold.
Yes, it is not just U.S. dollar assets but other government bonds are getting whacked. But the selloff across dollar assets and in the currency against other currencies, gold and oil suggests it is something about u.s. dollar assets as well. The selloff has continued somewhat today
https://www.bloomberg.com/apps/news?pid=20602094&sid=a5FSz01qhcHg&refer=govt_bonds
Japanese government bonds did not fall.