Either the bond market is not buying the GDP figure; or the bond market figures the growth is unsustainable; or the bond market is sleeping and we will see a spike in interest rates soon. Unless someone else has an explanation?
Absolutely I have an explanation.
In fact I have a HUGE bet on it.
I posted it earlier.
The explanation is this
1) The bond market is sleeping but not as you suggest. If there was going to be a hike in interst rates the bond market would be reacting, 100% guaranteed.
2) The bond market does not believe the GDP numbers and neither do you and neither do I
3) Greenspan has flat out stated that he is NOT raising rates for a "considerable period of time"
4) Snow said some nonsense about rising rates being a "good thing" or whatever and Eurodollars declined big
5) This was retracted and someone high up in the administration who corrected Snow saying he was talking about 10 yr rates and NOT the fed fund rate
So.....
Here we are
The only thing that can possibly force Greenspan to raise rates is 10 year treasuries selling off hard, very hard. Unless an until that happens (and possibly not even then) Greenspan is NOT raising rates, and even IF he is it sure as H is not by the amt implied by EuroDollars futures out to sept of next year.
Look, everyone here (I hope) thinks greensan is a reckless idiot. At least I do. Here we have a reckless idiot that has thrown $$$$$$$ at every problem he has seen for the past 10 years. That same idiot announces to the world that he will continue to do so. We will keep interest rates low for a "considerable period of time". Why is it that no one believes this idiot will do exactly what he has said he will do, and has done for at least 10 years?
Now, of course the bond market does not believe the GDP lies, nor does it believe Greenspan will raise interest rates.
All that said, the bond market is NOT pricing in expectations of default risk and other such problems. It will, 100% guaranteed, but possibly not until the world gets tired of buying US Tbills. The timing of that event is not related to US fed fund rates in a direct maaaner cause "Greenspan simply does not INTEND to raise rates"
Furthermore consider the effect rising rates will have on the housing market. Will greenspan raise rates and kill housing and the stock market this close to an election? Answer: not unless and untill forced by the bond market and then not at once.
When greenspan does raise, will it be out of the blue or will we first go from "risk of deflation" to "risk neutral" to "risk of inflation" to "greater risk of inflation" to "god damn it I am obviously late better hike by 1/4"
How long will that process take? Surely not a month. Not 2, not 4. Perhaps by May of next year (unless the stock market is still booming, gold is on the moon, the $ is plunging rapidly, and foreigners shun Tbills). Of those, the latter is probably the most important. It's gonna happen but when? Japan and China have been willing to suck up every last one of them. Is that likely to change overnight? It will sometime but when?
Thus I comfortably sit in Eurodollar call spreads betting that IF there is an interest rate hike it will not be more than 1/4-1/2 by election time.
I take Greenspan at face value on his statement. Usually hge spoeaks so contorted that you have no FN clue what he is saying. This time he was EXPLICIT. "no hikes for a considerable period". What is not believable about this?
Party On Dude!
M |
