The bonds did it
Or so reports Aaron Task @ thestreet.com
"Early in the day, the yield on the benchmark 10-year Treasury note fell below 4%, the lowest level since September 1963. Ongoing concerns about prospects for the U.S. economy, the Fed's decision to leave rates unchanged yesterday, geopolitical events in Columbia and Brazil and worries about potential war with Iraq fueled a continued "flight-to-quality" trade into Treasuries.
But after about 1:30 p.m. EDT, the only flights approved for departure were those departing bonds and arriving in equity land. For the past month or so, traders have been musing about the potential bullish implications of pension funds who've become overweight in bonds putting their focus (and money) back into equities and there was a lot of chatter about that today. (On RealMoneyPro.com, Scott Reamer of Union Tree Capital suggested one player swapping $1 billion out of bonds and into stocks was responsible for kick-starting the advance.)
"It's all about bonds and reallocation," said Robert Israel, equity trader at Victory Capital Management in Cleveland, which has more than $70 billion under management. "The fact is many institutions are loaded with heavy bond positions vs. stocks, and it's obvious that the risk reward is out of whack [with bond yields so low] , so they have to adjust. As you can see it can be very powerful."
Israel observed "two big buys" of the Nasdaq 100 Unit Trust (QQQ:Amex - news - commentary - research - analysis) totaling more than 2 million shares at about 1:40 p.m. EDT. The QQQs closed up 6.4%.
Others observed large-sized purchases of S&P 500 futures at around the same time.
The impact of those purchases was self-fulfilling as they helped push stock proxies higher, which compelled short-sellers to cover positions, which pushed stock proxies higher still.
"I think more than anything else, we have a large number of very nervous shorts out there at present," said John Bollinger, president of Bollinger Capital in Manhattan Beach, Calif. Short-sellers are "maybe not [responsible] for all the order flow and capital, but I think they're primarily responsible for the motivation" of the market's move.
Certainly the move into equities had bonds backpedaling. The price of the 10-year note ended down 8/32 to 102 3/32, vs. its early best above 103, its yield rising to 4.12%.
Beyond asset-allocation movements, some suggested today's rally was due to investors' relief that the restatements accompanying today's certification deadline weren't more widespread or from any bellwether companies."
thestreet.com |
