Interest Rate Roundup

Thursday, January 29, 2009

Hate to say I told you so, but ...

The Treasury bond market continues to collapse under its own weight. The long bond futures are down ANOTHER 28/32 as I write, extending recent losses to around 15 points in price. In fact, this month is shaping up to be the worst month for the Treasury market going all the way back to April 2004, according to Bloomberg.

Not only did the Fed fail to live up to expectations that it would immediately (or very shortly) start buying Treasuries, but demand for the latest flood of 5-year notes also came in weak. The Treasury sold $30 billion of 5s today at a yield of 1.82%, above pre-auction talk of 1.8%. The bid-to-cover ratio also came in weak at 1.98 (the lowest since September and before that, May). Indirect bidding was the only bright spot, with 34.9% of the notes sold going to that group (which includes foreign buyers).

I warned that Treasures were vulnerable and that the market was taking on bubble-like characteristics weeks ago. I hope you dodged this bullet.


  • Hope someone tells Mish about this, he's long the treasuries

    By Anonymous Anonymous, at January 29, 2009 at 6:09 PM  

  • Keep the up the good work Mike. You have been spot on.

    I said back on Jan 11 that long term treasuries were headed for a fall. With that being said, we might be due for a short term bounce at these levels. My biggest fear is that the Fed implements its plan to cap interest rates on the long bond by announcing a price and then buying in all bonds at that price. Sound far fetched? Bernanke said that is precisely what he would do back in 2002. Read it yourself:

    You can throw all your fundamental and technical analysis out the window if the Fed implements such a policy.

    By Blogger SoYouThinkYouCanInvest, at January 29, 2009 at 10:47 PM  

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