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John Kosar
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John Kosar, CMT, is Director of Research of Asbury Research LLC (http://www.asburyresearch.com/). Since 2005 Asbury Research has been providing in-depth, comprehensive financial market research to professional investors that understand the value and importance of incorporating technical,... More
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Logic-Over-Emotion Investing
  • What Do The July Fed Statement & Intermarket Relationships Suggest About US Interest Rates In Q3? 0 comments
    Aug 3, 2013 12:51 PM

    Excerpt From: Keys To This Week
    Asset Class: US Interest Rates
    Topic: Intermarket Relationships
    Date: August 29th, 2013

    Key #9 of 12: US T-Bond versus Euro Bund Prices. The blue line in the middle panel of Chart 9 below plots the daily spread between prices of the US T-Bond and the Euro Bund since 2009.

    (click to enlarge)

    Chart 9

    This green ellipse in the lower panel shows that the T-Bond is starting to rebound from quarterly oversold extremes versus the Euro Bund (red line, lower panel), while the green vertical highlights between all 3 panels show that previous instances of this have coincided with what have been the most important bottoms in the price of the T-Bond (black bars, upper panel) in recent history.

    continued…


    The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.

    From the July 30th-31st FOMC Statement

    Most investors seem convinced that long term US interest rates have bottomed and are now in the early stages of a major move higher, and for good reason. The yield of the bellwether US 10-Year Treasury Note has already spiked higher by more than 100 basis points since May, climbing as high as 2.74% on Thursday of last week.

    However, our chart above, plus other key market factors that we track, are now suggesting otherwise - at least over the near term. Moreover, we could be seeing the beginning of this right now, as long dated Treasury prices spiked higher on Friday in the wake of disappointing July jobs data, as the bond market quickly priced in more aggressive accommodation from the Fed.

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