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Strategies & Market Trends : John Pitera's Market Laboratory

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To: robert b furman who wrote (7256)	11/2/2005 5:58:55 PM
From: John Pitera	Read Replies (1) of 33421

Hi Bob, Demand for US GOvt' Bonds in 2006, an excellent question and what about the price/yield.... The Main Question is whether Global central banks are going to invert their yield curves and cause the 1st coordinated Global economic downturn since the mid 70's. Then US Bonds will have have a positive return for 2006. the Barron's feature interview presented an interesting viewpoint on how bonds could generate a double digit return next year. The US yield curve is very flat with only 15 basis points between the 2 and 10 year part of the curve. bloomberg.com The British Curve actually inverted between 3 months and 2 years, and 15 or 20 basis points from 15 years out to 30. bloomberg.com If we do have generalized global interest-rate inversion then US Bonds would be a beneficiary. On the demand side we'll need to watch China and Japan to see if they continue to be net buyers. Japan will be diversifying a percentage of their Postal Services Retirement and Insurance portfolio out of JGB's (Japanese Govt. Bonds) and into US and Euroland Govt. Debt and equity markets, with the Japanese equity market being the single biggest % beneficary. this will be occuring over a several year time horizon. China should be floating their currency by the end of 2006 or Q1 of 2007 and that will could be a negative for US Govies. Obviously the USD's momentum and direct will impact the market. It's not hard to see why the USD has rallied on balance this year from 80.39 last Dec. to 90.77 in June and has has been trying to retest the high so far getting to 90.74 the reason is that short sellers of the Dollar have been paying points (interest rate differential) every day for the priveldge of being short the buck. Global Investment Flows go in the direction of the currencies with the highest yield 85% of the time until you get a currency volatility directional trend move. ------------ International Government Bonds Wednesday, November 2, 2005 COUPON MATURITY (Mo. /yr.) PRICE CHANGE YIELD* JAPAN (3 p.m. Tokyo) 2.00 12/07 103.54 -0.01 0.32 1.90 12/10 104.89 -0.05 0.90 1.50 09/15 99.45 0.03 1.57 2.50 09/35 102.82 1.07 2.34 UNITED KINGDOM (5 p.m. London) 4.50 03/07 100.20 -0.07 4.43 4.75 06/10 101.42 -0.24 4.40 4.75 09/15 102.71 -0.54 4.41 4.25 03/36 99.82 -0.62 4.26 GERMANY (5 p.m. London) 2.25 09/07 99.28 -0.03 2.65 2.50 10/10 97.46 -0.33 3.06 3.25 07/15 98.37 -0.25 3.45 4.00 01/37 103.22 -0.34 3.82 CANADA (3 p.m. Eastern Time) 2.75 12/07 98.21 -0.01 3.65 4.00 09/10 100.42 -0.02 3.91 4.50 06/15 102.50 -0.04 4.18 5.75 06/33 122.18 -0.08 4.36 -------------------------------------------------------------------------------- as the 10 year rate moves up to 4.70 lets see if the bond rallies in price /drops in yield. The USD will probably not make a new yearly high over 90.77 and will then have a C wave decline of a similar time and price magnitude of the decline from July 05 to Sept 05.

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