If one takes a quick peak at the charts one will see that July 23rd marked a turning point in the bond and currency markets. The Euro hit its low versus both the Yen (AMEX:FXY) and the US Dollar (AMEX:UUP) that day and the yields on U.S. Treasuries and Japanese Government Bonds (JGB) hit their low as well. Since then the markets have all pivoted in the opposite direction. But what is interesting is not that the have done so, after all the short-Euro/long US Dollar trade is one of the most crowded in the history of man, but the extent to which the Dollar and the Yen have diverged. The fear trade reached its Tulip mania moment frankly when George “I’ll talk my book ’til I’m blue in the face” Soros declared the Euro had 3 days left, not 3 months.
Well, George, the Euro’s still here and it’s been a few more than three days.
Since July 23rd U.S. Treasuries (AMEX:TLT) on the long end of the yield curve, the only place the Fed has any more control, have risen sharply. After today’s bloodbath in response to both the recent awful 10 year auction where the Fed had to buy 45% of the issue and this morning’s retail sales beat, the U.S. 30 year bond is up to a yield of 2.82% or a 15.7% rise in just 3 weeks. The 10 year note is up 15.7%.
On the other hand, JGB’s are off much less. The 10 year is down just 10.1% and the 30 year off just 6.67%. What this means, of course, is that capital is shifting back into Europe a bit but now it is also shifting out of the U.S. preferentially, while the Yen continues to get a strong safe-haven bid.
30 year U.S. bond futures look awful right now. There is some support at 147.4 but if that fails, then 147 and 146.5 are on deck and a yield nearer 3%. This is what is putting a bid under stocks. Money is rotating out of bonds and some of it is leaking there. The last time bonds hit a potential crisis point the Fed reversed policy again and pushed yields lower.
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