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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (3631)	1/24/2008 1:37:18 PM
From: Giordano Bruno	Read Replies (1) \| Respond to of 71456

Is this the T yield scenario you pictured?

To: Real Man who wrote (3631)	1/26/2008 9:30:36 AM
From: RockyBalboa	Read Replies (2) \| Respond to of 71456

One Reason: Fear, and possibly greed by some momentum investors. I have also seen it in 1998 during the first credit crisis and LTCM meltdown, as everybody only wanted to buy the safest of bonds. (Fear clearly involves pricing in a Japanese Liquidity trap scenario with interest rates going far below 2%. Do the math and think about the distribution of possible rate scenarios when the traded price today is 2%..that could be between 3.0%.. no more cuts, and 1.0%). Unwinding billions of mortgage porfolios also involves massive covering of interest rate hedges. Imagine a depreciated and restructured mortgage portfolio having perhaps 40% of the original notional value...hedging requirements are also lower. A lot of people have been buying treasuries all the times when mortgage funds shorted them: Central Banks and risk averse investors.. they let them go but that comes at a price. In a thin market covering happened along the curve not only in 10 or 30 years. This was clearly the paradox outcome of the 75bp cut: Normally such a cut would remove pressure on the short end, not add. Perhaps some overeager barbell traders, shorting the very short end and long end while buying 5 to 8 years got burnt too. Therefore the Dec 08 FF hit 2% and even the Eurodollars traded as low as 2.15%. This will pass (I made my bets accordingly and so far, they seem to work).