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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (43481)	12/27/2005 12:08:08 PM
From: CalculatedRisk	Respond to of 116555

Ten-year Treasury yields dip below 2-year news.yahoo.com LONDON (Reuters) - Ten-year U.S. Treasury yields dropped below those of two-year paper in Europe on Tuesday for the first time in five years, fuelling speculation the world's biggest economy is slowing and interest rates may soon peak. However, after the inversion as European markets were opening on Tuesday, the yield switched back and forth in thin holiday volumes. Although five-year T-Note yields dropped below those of two-year paper in November, 10-year bond yields moved below 2-year debt yields on Tuesday for the first time since December 2000. The so-called inversion of the yield curve is rare because investors typically demand higher yields on longer-dated bonds for protection against the risk of higher inflation later. Some analysts say a flip in the yield curve could suggest investors see the economy slowing in the coming months, prompting the Federal Reserve to stop raising rates or even cut them. The federal funds is at 4.25 percent after 13 successive hikes since mid-2004. "We must wait until the new year to have a clearer picture (on rate policy). The volumes are so thin that we can get crazy price moves and these are empty holiday days," said a senior bonds trader in Berlin. "It all depends on the economic data from the United States that we get over the next six to weight weeks. But I am prepared to believe that we may be seeing signs with this inversion of a slowing U.S. economy and an end to Federal Reserve rate hikes." At 1127 GMT, two-year T-Notes were down 2/32 since the New York close on Friday and yielding 4.398 percent. The 10-year T-Note was down 5/32 and yielding 4.401 percent. The five-year T-Note was down 3/32 and yielding 4.343 percent, while the ultra-long T-Bond was down 9/32 and yielding 4.566 percent. The implications of an inverted yield curve are not clear-cut. Fed Chairman Alan Greenspan recently said the yield curve has lost its ability to signal pending changes in economic conditions because markets have become more complex. In February, Greenspan commented on the "conundrum" of long-dated yields, as ultra-long yields fell at a time when the Fed was in the midst of a succession of rate hikes. The U.S. Treasury market resumes on Tuesday after a three-day weekend, beginning a shortened week that will end early on Friday. The 10-year T-Note future was down 4/32 at 109-15/32. "While the hourly view is more constructive while trades above the 109.05 mid-point are seen with the door open for tests of the 109.27 area in due course, the directional bulls must be able to break and produce closes above this region to maintain the upside impetus currently in place," said Richard Adcock, technical analyst at UBS in London. "Any failure to do this will be a more bearish development and place emphasis on the 109.05 support, although breaks under this will expose the contract to fresh liquidation risk," he added. Ten-year T-Notes yielded 112 basis points more than German debt.

To: mishedlo who wrote (43481)	12/27/2005 12:58:57 PM
From: kormac	Read Replies (2) \| Respond to of 116555

Mish, I just returned from Bangalore and I spent 170 dollars a month to live there, each of the 5 past months. The wage differential will indeed continue to be huge and Manmohan Singh is opening other sectors, such as manufacturing and infrastructure building to FDI. I do not understand how jobs going to India and China relates to the US housing situation in large cities. There is a reason why cities came to existence, as Jane Jacobs and Lewis Mumford have written. Future in the US will, however, belong to the small towns (such as Danville) because, owing to the persistent energy scarcity, people will need to engage in growing their own food, increasingly by animal or human power. My time frame here is 30 years. As to people working from their homes, only a fraction can do it. Others will need to drive, take a commuter train, bicycle, or walk to work as they have over the last 100 years. Working at home is for those in information fields, but in the physical economy must be carried out by other kind of workers.