Interest Rate Roundup

Friday, July 11, 2008

The scariest thing on my screen: Falling Treasury prices

What's the scariest thing on my screen right now? The bonds. Long bond futures ... in a day where the Dow was recently down 220+ points ... were down 30/32 in price. On a "typical" day with this kind of credit news, you would expect Treasury prices to be FLYING to the upside and rates to be falling. They are not.

That tells me that the bond market is finally facing up to the inflation problems out there (minor point) and more importantly (major point), starting to ever-so-slightly question the credit quality of U.S. sovereign debt. Investors are wondering about the cost of any Fannie and Freddie bailout to the U.S. itself. Default swaps -- CREDIT DEFAULT SWAPS -- on U.S. debt jumped to a near-record today. Granted we're talking about an earlier move of 4 basis points to 18 ... a mere pittance in the grand scheme of things. But the fact this is happening at all is a sad -- and sobering -- commentary about the degree of the credit crisis.

UPDATE: Long bond futures now down almost a point and a half. Two-year yields are up 14 basis points.


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