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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: RealMuLan who wrote (23232)2/9/2005 1:28:52 PM
From: mishedlo  Read Replies (3) of 116555
 
Yield Watch
Japan has lightened its load of treasuries since Sept 2004.
forexnews.com

Now admittedly that was not a very big selloff, but it does point out a few things:
1) Treasuries did not get hammered as the bears expected on a pause in Japan buying. (The thesis was that a mere PAUSE in treasury buying by Japan would sink treasuries). I believe that has now been proven incorrect.
2) Not only did the 10-yr not decline, it rallied.
3) Obviously there was sufficient buying pressure outside of Japan to support treasuries

One can argue that the long end rallied because of FED monetization, but I am not sure I buy the argument. Lately the FED has been draining liquidity via expiring repos and there have not been significant coupon passes for quite some time. I can accept the argument of short covering but had job numbers and ISM data not been showing weakness, it is doubtful we would have seen this rally.

Note the rally in the 5-yr today vs the 10-yr
This actually steppened the yield curve for the first time in quite a while. One day does not make a trend, but it is my belief that a steepening yield curve is likely to be good for gold. The fact that both the "five and dime" rallied today is indicative of a treasury market that sees economic weakness.

I am closely watching 13-month yields here.
If those yield start heading lower, we will be seeing a market that will be expecting the FED to Pause.

Here are tickers to watch:
$TYX - 30 yr
$TNX - 10 yr
$FVX - 5 yr
$IRX - 13-mo

Mike Shedlock
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