Saturday, May 15, 2010

Bonds: Yields rise as Euro related worries trump good US Retail news

EUR/USD- 1.24 at Friday (May 14)
US 30YT = 4.33%
US 10YT = 3.46% (up from 3.44%)
Yield Curve: Normal

Persistent worries regarding the Euro zone is causing concern resulting in a 'flight to quality trade'. U.S. government bonds rallied on Friday as persistent worries over the euro zone's debt crisis led investors to move from stocks for the safer harbor of Treasuries. The bond market shrugged off data showing a bigger-than-expected rise in April U.S. retail sales, focusing instead on the slumping euro, which fell to an 18-month low against the dollar, under $1.24.

Source: Bloomberg, May 15, 2010

Summary of Markets:
As Business Week summarized, Stocks fell around the world, oil fell and bonds rallied on the prospect of weaker growth and lower corporate earnings as doubts arise afresh on economic recovery and especially the 1 Trillion gamble by the ECB and Co.
I for one want to see more details of the 'sterilization' plans of the ECB
CDS Indices and ITraxx Europe: The other part of this 'flight to safety' is indicated by the Markit Itraxx index family. Data from FT and Markit show that the Markit iTraxx Europe index widened by over 12bp to hit 110bp by May 14, while the Markit iTraxx Crossover soared through the 500bp mark to finish 50bp wider at 508bp. Pressure resumed on the sovereigns, with the Markit iTraxx SovX Western Europe index climbing 13bp to close at 123bp. That fed through to the banking sector and the Markit iTraxx Senior Financials was 19bp wider at 147bp...
              Courtesy: Financial Times
The ECB's umbrella wont do...Greece and the PIGS should avoid their favorite past time of 'getting themselves drenched in fiscal imprudence'
As Sir Humphrey Appleby put it so eruditely ' Change horses midstream and you might find yourself up a creek without a paddle'
US Muni News and BAB: According to the "The Bond Buyer’s weekly" yield indexes increased a bit last week though the secondary market continued to be dull. Apparently last week's volatility in the equity markets has put a damper on US muni activity. According to IDD magazine and Eaton Vance, "For institutional investors, there’s a relatively manageable calendar, and the June-July reinvestment approaching, so they’re not rushing to sell,” “The dealers aren’t really rushing to sell, either. The demand is soft, and there’s no pressure to sell. It’s just been quiet. Every afternoon, activity has just tailed off; there’s a summer-like effect.”
As reported by Bond Buyer magazine, In the new-issue market this week, Citi priced $789.8 million of debt for Seattle, consisting of tax-exempt bonds, taxable Build America Bonds, and taxable recovery zone bonds. Bank of America Merrill Lynch priced $750 million of taxable BABS for the New Jersey Economic Development Authority, the BAB market’s largest-ever floating-rate note sale.

Analysts said investors were overlooking the data and focusing on fear and uncertainty over Europe's troubles and what they might mean for global markets and the economy. To me this looks really concerning as the bond market has already seen such huge influx of funds as I have said in my earlier posts...

Virgil was right after all, we should fear the greeks especially when they bear gifts like these...

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