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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (1368)	5/15/2003 7:50:12 PM
From: pater tenebrarum	1 Recommendation Respond to of 4913

Asian monetary bureaucrats have been spotted as a great captive audience, since they don't want their currencies to rise too much against the dollar. note also that there's no shortage of people trying to find THE top in the bond market. recently the Rydex bond ratio hit an unprecedented 10 (meaning, short positions exceeded long positions by a factor of 10 - it has since come back to about 6.5 , which is still nearly three times previous historic peak level). that was a sure sign that new lows for yields were on the way, as the Rydex bond universe, though small, is a great microcosm of bond sentiment, an almost unfailing tool for predicting interest rate trends (as long as not too many people watch it that is). my guess is that there's more to this than just Asian buying....Marshal Auerbach recently remarked that in light of various Fed statements regarding 'unconventional measures' aiming to lower LT yields, market participants have been emboldened by yet another perceived 'Greenspan put' , this time on bonds. and in spite of the recent stock market rally (which may prove ephemeral anyway) , the bond market seems to sense deflation and contraction for the foreseeable future. this is borne out by crucial economic data like the earlier mentioned industrial capacity utilization. interestingly, it may also create a self-reinforcing spiral of sorts, as one refi cycle after another is spawned by sharply falling yields, which in turn has an effect on FNM's et al.'s 'duration gap' , begetting more buying of treasuries. at the same time, the leaps and bounds by which the mortgage credit bubble grows also creates a potential future deflationary force - which would beget even more treasury debt buying well beyond the 'duration gap' issue. calling the top of this market is akin to trying to call the top of Japan's JGB bubble over the past decade. who didn't think the JGB at a 2% yield was hopelessly overextended? well, it now yields less than 0.60%, and that's a swell return in deflation-adjusted terms. even the 'zero percent' loans now favored by the car industry may turn out to provide a hefty return in real terms, provided they get paid back. all that said, the US situation differs from Japan's insofar as foreign investors hold a large chunk of US debt. if they bail en masse to avoid losing out on the falling dollar, a top could be made in spite of everything. but word is that many have 'hedged' their dollar exposure - stuff for a future derivatives blow-up imo, but helping to reduce the urge to get out for now.