(Emphasis is mine!)
prudentbear.com
<<TALK FROM TRENCHES: US CREDIT MKT HAZY; G-SPAN, PPI WAITING
by Isobel Kennedy
NEW YORK (MktNews) - The U.S. credit markets opened on Tuesday dead in the water but about mid-morning the activity picked up a little.
Initially prices dipped after strong industrial production but the response was very muted. Then prices started to grind higher for no apparent reasons. More
buyer than sellers, we guess!
Unfortunately, the street chatter has been "all over the place", one source said, and none of it confirmed.
In the overnight session, real money was said to be selling 5s and 10s. But by midmorning there was talk of money managers back on the buyside.
Early Monday, a large international hedge fund was said to be buying 10s. Later, however, other hedge funds were said to be selling.
And when the little two-year note got a bid it was rumored to be asset allocation out of stocks into treasuries. But again, it was just talk.
In reality, one players said "no one knows what is going on so they are just throwing things out there." Could be the best thing we heard all day.
The 2/30Y curve did steepen to -36 vs. -38 on Monday as the 2Y note outperformed the bond. Sources did expect that with inflation and Greenspan on the front burner, players might forget about lack of supply in the long end. In that case the curve might go back to being market directional, at least for today, they said.
The markets are still focusing mainly on Mr. Greenspan's Humphrey-Hawkins, which is slated for Thursday. Players wonder if he will bring up the inverted
curve. More likely, economists say, he will talk about the fact that lower bond market rates are not helping him slow this economy down. Will he mention more
and more tightenings?
Speaking of this red-hot economy, one bearish strategist says the January production data shows "the economy is firing on all cylinders" and "this means
higher interest rates."
One economist has separated U.S. industrial production into the "old economy", which is manufacturing outside of computers and semiconductors, and the "new economy". He says the old economy was up 0.8% in January and that means it is "reving up" and joining the already blistering new economy.
He estimates that U.S. manufacturing stands 5% above its 4Q average. "After building momentum throughout 1999, the factory sector clearly entered 2000 with an impressive head of steam."
Inflation is the second worry of the week for the bond markets. PPI comes out Thursday and CPI on Friday.
Today Tuesday, the U.S. Bureau of Labor Statistics issued revisions to PPI and the new data show a slightly lesser increase in December, +0.1% versus the original +0.3%. Huh, revision no. 200 in as many days - the result of all revisions being the same, i.e. lower CPI. May be this is the best way to save social security. Screw the retirees with less payments while the speculators are rewarded with more via this manipulation. Great. Just great!
The revisions occurred because the BLS put new weights on product groups and set new monthly seasonal factors. The weights put less emphasis on crude oil and more on other "supplies." As expected, economists are now putting a new spin on January seasonals.
One economist says the revised seasonals for January imply a slightly higher reading than we had been expecting for January PPI. He changed his forecast
for January PPI to +0.2% versus +0.1%. He made no change to his estimate for core PPI at 0.0%. He reminded us that the updated seasonals for CPI will be
released tomorrow.
Speaking of inflation and soaring heating oil bills, U.S. President Clinton is not promising any action! He said oil price trends are being monitored and he has not closed out any options. But sales from the U.S. Strategic Petroleum Reserve have been ruled out in the past.
If that's the case, it's a good thing that Mr. Clinton is not up for re-election. Lots of those "American people" the politicians drone on about all the time are pretty upset about this oil problem! Amazing how the Western world is reacting to the OPEC with an extra emphasis on the word CARTEL. Perhaps they want the OPEC nations not to question the print-a-thon by accepting less of the stuff ($) they print more and more every day in return for the scarce commodity?
Don't forget Wednesday is the 2Y announcement. Some think the size may be reduced under the Treasury's new debt program. The Bond Market Association had recommended $14 billion, the same size as the January sale before the offering calendar was revamped. But some economists expect $13 billion, in line with the plan "to cut modestly the size of individual auctions of 2Y notes" that Treasury Under Secretary Gensler spoke about at the refunding press conference.
In other matters, on-line bond brokering and sales systems are talked about in Tuesday's Washington Post. The article claims dozens of new on-line companies are trying to gain entry to the bond business now. One of these on-line companies has filed suits against six Wall Street firms claiming that lack of
price transparency in the U.S. bond trading industry has cost investors $40 billion over 2 years because they paid too much for bonds. Now wonder why bond
players used to joke, "Dah bond biz has been berry, berry good to me."
Another interesting article was in the Wall Street Journal Tuesday. It reports that margin debt to buy stocks rose 7% in January to a record high level and it
is up 36% since September.
But it appears it is not "mom and pop" utilizing the margin. It is mostly speculative accounts, in the fast moving technology arena, and hedge funds.
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.
13:41 EST 02/15 >>
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