TALK FROM TRENCHES: CASHING IN POST-AUCTION; BEARS GET SMALL
By Isobel Kennedy
NEW YORK (MktNews) - Well, the post auction rally that many had been calling for finally materialized. After the market friendly PPI, fives, tens and bonds rallied to low yields of 5.85%, 5.97% and 6.12%, respectively. Whether traders were just plain smart or just plain lucky, they booked big profits from the auction averages of 6.014% on the five year, 6.085% on the ten and 6.144% on the bond.
Of course it didn't hurt that in the midst of the uptick, a major international hedge fund was said to be simultaneously lifting dealers out of big positions in fives and tens. In addition, previously bearish end-user accounts came off the sidelines and bought intermediates too, sources said.
Sources also say Thursday's abrupt suspension of trading at the CBOT due to power problems and another night of no trading on Project A created some pent up demand out of Chicago. The Project A problem has gone on most of the week and is attributed to early millennium bugs at MCI.
Despite today's impressive performance, there are still bears out there even though they may be littler then they were before. They question the market's ability to sustain today's levels. But heck, they wondered if the market could sustain yesterday's levels! These guys are looking for some selling to occur before next week's CPI and/or the FOMC meeting on Aug 24.
Guess it could happen. After all, prior to today's rally, the new bond was bid around the 6.20% level. At the time, analysts were saying the 6.22% level was crucial. A close above that yield would be negative, suggesting a move to 6.48% in the future. Could a bad CPI produce these levels again?
In the bull corner, some are getting more bullish. A few of them are now even thinking that if next week's CPI is tame, the FOMC may push off another rate rise until Oct 5.
One seasoned salesman who has been bullish all along, advised accounts to buy during yesterday's and Friday's pre-PPI downtrades. "Get on board and average down ... the downside is limited and while the upside may have a cap it's far enough away from current levels that modest investment risk is called for." If his accounts listened, he made some money today.
Friday's Financial Times says August has been the "Wobbliest Month" for bonds for the past three years in a row. The article questions how much investment banks and hedge funds have suffered in this month's selloff. One of our readers talks about the August bond market stress in less journalistic terms calling it the "worst (such and such) month for people's heads in a long time. Maybe because it's the month that psychiatrists take off." Not to worry, this old pro is still looking for a big market rally beginning in mid-September.
A rally in the dollar against the yen also helped bonds today. While much of the move was said to be big buying by a hedge fund and U.S. money center bank, many players say it smacked of covert central bank intervention but that's pure speculation. However, Kampo was believed to be buying dollars in the overnight session. And didn't Japan buy dollars the last time their GDP came in shockingly high, trying to cap the resulting yen rise?
In other matters, what did Japan's Finance Minister Miyazawa mean when he said Friday's upward GDP revision to to 2% from 1.9% was "mostly academic"? Hello!!! And speaking of political double talk, why does President Clinton say he has "no earthly idea" if Fed Greenspan wants another term? No wonder he will be out of a job before Alan.
Elsewhere in Asia, remember when the Hong Kong government bought all those stocks in the open market last August to prop up their stock market? According to the Wall Street Journal, they are now sitting on big profits and are mulling their options for disposing of those stocks. Without, of course, selling them back into the open market and creating a disaster.
Are things looking up in Russia? Russian oil companies began paying taxes in cash this month instead of oil. And they are paying ahead of schedule which will boost tax collection to all-time highs in August, according to their tax minister. Russia has promised the IMF it would force companies to pay all their taxes in cash as a condition for receiving a new $4.5 billion IMF loan. Cash? Ahead of schedule? Wonder what America's internal revenue service makes of this! --Robert Ramos, Kim Rellahan, Alyce Andres, Dennis Pettit contributed.
NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge
of the mood in the financial markets. It is not hard, verified news. |
