Interest Rate Roundup

Monday, September 18, 2006

Another day, another bond market pounding

Long Bond futures are off about a half point (15/32). The catalyst: News that foreign inflows were just shy of $33 billion in July. That's less than half the market forecast. Moreover, it failed to cover July's gigantic trade deficit. The current account deficit figures for Q2 were also poor. Since we basically mortgage our economy to foreign debt holders day in, and day out, any drop off in foreign inflows into our bonds could send interest rates higher. That's why this is bad news.

Technically speaking, if the long bond contract breaks roughly 109 and a half, we could be in big trouble. I'd take that as a sign that bond prices have further to fall and interest rates have further to rise, perhaps much further, given how many speculative, hot money types have piled into Treasury futures.


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