The auctions this week have been a mixed bag. Demand was tepid for the shorter term Treasuries earlier in the week. But demand for the 10y and 30y bonds was pretty aggressive, with bid-to-cover ratios above 2.7. Anything above 2.0 is considered a smashing success.
10y Treasuries crossing over as Gold slammed - www.hiddenlevers.com/hl/u?gPe2pj
Foreign investors contributed to 49% of today’s 30y US bond sales. Could this represent international confidence in the US government? Not necessarily, but even with concerns of a ballooning deficit, it looks like Uncle Sam is still the tallest midget at the party. Between commodities being top-heavy and the PIIGS on their last legs in Europe, this was the most promising opportunity for the foreign investors. Based on current yields this auction was just one of the many Holiday sales out there. The WSJ blog had a nice take on Treasury yields in context of other economic levers, like Gold and the USD index, that made screamed our name:
“Triangulating today’s 10-year move with other market moves suggest that investors aren’t staying away from U.S. debt because of any great concerns about the creditworthiness of the country… For one thing, CDS — or insurance on bond defaults — for U.S. debt is up a mere 1 basis point on the day. Not exactly a panic. Also up: The U.S. dollar. You’d be a loath to hold greenbacks if you were worried about Fed trying to monetize away giant debts. Other gauges of inflation worry are also down. Gold is getting slapped, down 1.9%.” - Matt Phillips, WSJ (Bless your heart).
So in the end, maybe US sovereign debt is just a winner by breaking even, said Phillips. Higher mortgage rates are good for banks. I used HiddenLevers screener and found Intervest Bancshares Corp (IBCA), Beverly Hills Bancorp Inc. (BHBC) and Pacific State Bancorp CA (PSBC), among other banking stocks that look good should the upward trend in rates persist.
HiddenLevers can help you find stocks based on where you see Interest rates headed, among dozens of other economic trends. Or, if you are concerned with how your current portfolio would be affected by rising interest rates, HiddenLevers can help you understand how your investments would be affected in such a scenario. (subscription required)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.