Bond Expert: Friday Wrap

Prices of Treasury coupon securities moved higher today in a languid and lackadaisical trading session. The yield on the benchmark 2 year note has declined by a basis point to 2.64 percent. The yield on the 5 year note has dropped 4 basis points to 3.37 percent. The yield on the 10 year fell 6 basis points to 3.98 percent and the yield on the 30 year bond tumbled 7 basis points to 4.53 percent.The 2 year/10 year spread is flatter by 6 basis points and is closing the day at 134 basis points.

The 2 year /5 year/30 year spread is 43 basis points.

Once again I note that the level of activity was subdued . Dealers were looking ahead to next week with quarter end and a shortened trading time frame with next Friday the July 4th holiday. The Labor Department is set to announce the monthly employment series on Thursday so that will make for some possibly very hectic trading in that abbreviated session.

I have noted several times that I have been long the 2 year part of the Treasury curve via the ETF SHY. I sold that position out to today and I am once again flat. I bought the position with the 2 year note at around 2.90 percent. To be honest, I would not have sold out of the position but when my father turned very ill the SHY became less important for me. I am told the 2 year traded back to 3.10 percent. I sold out today with the issue close to 2.60 percent. That is a nearly 50 basis point run. I feel as though I got a reprieve from the governor and with the issue lagging today, profit taking seemed appropriate.

I think that the stock market is oversold and is due for a healthy bounce. If I am correct on that (a big if), then there should be an opportunity to buy Treasury paper 10 basis points to 15 basis points cheaper than current levels.

Comments

[adan]

important info, thanks!

[adan]

important info, thanks!

[carey_jim]

You've left out economic fundamentals:

How can the United States Government continue to borrow money at confiscatory rates?

While the dollar continues to drop and inflation accelerates, interest rates should rise dramatically, on their own.

The free market system can't be held in check forever by Government fiat.

To add insult to injury the Free Market (sic?) US is putting pressure on the Totalitarian Chinese Communists (sic?) to raise the value of the Renminbi against the dollar.

It's no secret that the Communists are artificially holding down US interest rates below market values by buying US paper money at very low (below market) interest rates.

What rational investor would buy Treasury Bills at less than 3% yearly interest when prices are going up 7% a year or more (and, in the case of our major creditors, the Chinese, your own currency is being pressured by the US Government to increase in value against the dollar)?

Economic fundamentals are telling the US that interest rates must rise dramatically to protect the dollar and keep inflation in check.

In the long run, neither the Fed nor the Communists can repeal the laws of economics.

Investment strategies should be based on economic laws and not the futile efforts of governments.

Your advice amounts to telling people to run back and forth on the deck of a ship that is careening out of control in a violent storm:

You might make money in the short run by rushing from one side to the other (and you might not) but in the end you will sink with the ship.

[sw05052002]

Simple status:
buy (almost all kind of) bonds.
But don´t touch: US-$ bonds.
theoptimizedportfolio....