Market Currents
The bond market is closed for Columbus Day, but bond futures are trading and the long end is...
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Monday, October 10, 2011, 12:07 PM ETThe bond market is closed for Columbus Day, but bond futures are trading and the long end is plummeting. The 30 year has now given up all of its post-Operation Twist announcement gains, and the 10 year price is significantly lower than it stood on September 21.
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The last thing we need is a flatter yield curve and overall lower rates. Lenders need more, not less, incentive to lend long term. If rates would start creeping up across the board, we'd also see borrowers get off the sidelines and make loan demands to lock in lower rates.
The stimulation that increased borrowing and lending will produce will move the economy and market higher, not lower. The oft-stated cliam that higher rates suppress economic activity is specious, when rates are at all-time lows. Any negative effect from higher rates is many, many percetange points away.
We still need the banks to lend, knowing loose standards is in part why we're in the predicament that we're in. I also think Mainstreet is more concerned with the debt issue than many think. That in itself could cause severe problems in the next few months as once again in November the debt ceiling debate ensues. Third, we also have this EU problem. The sooner Greece defaults the sooner the other PIIS bondholders will agree to take a haircut for fear of receiving nothing. This postponement of the inevitable continues to stifle our markets and I suspect will for some time- especially the financials. Some say financials lead the way to recovery, and they cannot lead until EU is solved. Until then, we are today at the low volume top of this trading range and will probably retest 1060-1080 within the next week.