US Bonds/Interest Rates

RichKid said:

No problem at all prof frink. My apologies, I didn't intend to be rude, I was in a silly mood, thought you might have taken it in the humour I intended, looks like I misjudged it. I liked some of the quips in your posts, that's all. sorry!

btw, I think it was my punctuation, I should have used a full stop and then said : "I like your posts frinko". I hope that clears it up.

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Not a problem RichKid. Have a good day mate

Smurf1976 said:

My basic view is that something in the economy will "break" and until that happens, US short term interest rates will keep rising or at least not fall. That's just based on history. Knowing what that something that breaks will be is the hard bit.

Just to raise another possibility (I'm not saying it's likely) but it's possible that oil and other commodity prices could move in different directions. A major oil shock (for whatever reason) would send the oil price to the moon but the resultant economic slowdown (physical oil consumption would have to fall due to lack of short term supply at any price which implies a slowing overall economy) would cut demand for commodities in general. So oil up whilst other commodities (with the possible exception of energy commodities) fall. It's possible IMO but whether or not it's likely is another matter. The ongoing tensions in Iran is my underlying thinking here.

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It does seem only a matter of time before the US makes a strike against Iran. The first may not be a decisive strike as they wait for a reaction, not only from Iran but importantly from China and Russia.

International bond markets hitting new lows:

http://today.reuters.co.uk/investin..._RTRIDST_0_MARKETS-BRITAIN-GILTS-UPDATE-5.XML

UK gilts pounded by strong data, rate hike bets
Tue Apr 25, 2006 5:17 PM BST
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(Page 1 of 2)

By Ross Finley

LONDON, April 25 (Reuters) - UK gilts and short sterling interest rate futures took a pounding on Tuesday after a barrage of UK, euro zone and U.S. data convinced traders interest rates are headed higher.......

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US Bonds taking out lows as well.

Like I said earlier, overcommitted property investors should steel themselves :

New lows again today... and starting to get the attention of the press...

http://money.cnn.com/2006/04/26/markets/bondcenter/bonds/index.htm?section=money_markets

1

0-year yield hits multi-year high
Treasury prices stumble on surprisingly strong durable goods orders, pushing benchmark yield to highest level since May '02; dollar gains.
April 26, 2006: 9:34 AM EDT

NEW YORK (CNNMoney.com) - Treasury prices slipped Wednesday on stronger-than-expected durable goods orders report, putting the yield on the 10-year to its highest level in nearly four years.

The dollar strengthened against the euro and the yen.

The 10-year Treasury note sank 8/32 to 95-11/32 to yield 5.10 percent, up from 5.08 late Tuesday. Earlier, the yield on the benchmark note hit 5.11 percent, marking the first time it had breached the 5.10 mark since May 2002. Bond prices and yields move in opposite directions.........

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China raises rates

http://yahoo.reuters.com/stocks/Quo...04-27_11-11-55_L27093917&symbol=.FTEU3&rpc=44

Economies like the UK and Australia will not be able to swim upstream against the direction of world interest rates, which is up! This of course will be catastrophic for lots of folk, but a gigantic opportunity for others. Mortgagee sales coming to a suburb near you

Liquidity is King!

GLOBAL MARKETS-Shares fall, yen yo-yos as China ups rates
Thu Apr 27, 2006 7:11 AM ET

(updates after China rate rise announcement)


LONDON, April 27 (Reuters) - European shares extended their fall on Thursday after China said it was raising interest rates while the yen rose against the dollar and the euro before pulling back on comments by Japan's top financial diplomat.

The People's Bank of China raised its benchmark one-year lending rate by 0.27 of a percentage point to 5.85 percent, effective from Friday.

The interest rate increase is the first since October 2004.

It follows an acceleration in annual economic growth in the first quarter to 10.2 percent that had fanned worries among economists that China's economy was overheating.

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Rates pressure building
From: AAP

April 28, 2006


THE case for an interest rate hike is building and while a move as early as next week can't be ruled out, most economists don't expect the central bank to act that soon.
The Reserve Bank of Australia (RBA) meets next Tuesday to vote on whether to alter the official rate, which has held at 5.50 per cent since March last year.

Most economists expect rates will remain unchanged following the meeting.

But the recent run of economic data has led some to revise up the chance of a hike in coming months, particularly after new inflation figures suggested an acceleration in prices down the track.

The speculation came as the Housing Industry Association (HIA) released new home sales figures showing that sales of new houses and multi-unit dwellings, or apartments, grew by 5.2 per cent in March to 10,114 dwellings.

HIA's chief economist Harley Dale said the March figures were a positive sign that the current slowdown in housing activity was on track to finish in late 2006/07. "New home sales were looking relatively weak in the first quarter of last year and it is a positive development that sales levels are higher in the March quarter this year," Mr Dale said.

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But he warned new home sales would only pick up to the high levels of a few years ago if there was no change in the official interest rate, which has held at 5.50 per cent since March last year.

"New home sales are clearly recovering from a weak 2004/05, but you can forget about a continuation of that trend if households have to endure another interest rate rise," he said.

Of 13 economists surveyed by AAP, just four said the central bank would raise rates next week, one believed there would be no move until the June quarter while three see the December quarter as a more likely time for a hike.

The results compared with AAP's previous monthly survey which found no economists expected a near-term change and only one believed rates would rise sometime in the second half of 2006.

Macquarie Bank chief economist Richard Gibbs, who does not expect a hike next week, said unlike recent past RBA meetings, its decision next week is not a done deal.

"It's not an open and shut case and therefore it is an issue of policy action that will be discussed fully next Tuesday," Mr Gibbs said.

"I don't think you can say it's a closed decision at this point in time."

But Grange Securities director of research Stephen Roberts, who does expect a hike next week, says the pieces needed to build a case for an rise have come together in the past few weeks.

"We've got evidence of inflation already out of what was occurring in late 2005 and the first part of 2006," Mr Roberts said.

"And with strengthening growth and an added tail wind from overseas, I can't see that they've got much choice but to lead into that with an interest rate increase."

Inflation data released this week showed the consumer price index rose by a stronger-than-expected 0.9 per cent in the March quarter and three per cent annually.

But the core measure of inflation, which excludes volatile items such as fuel, rose only 0.3 per cent in the quarter and 1.7 per cent in the year.

Just what this says about the outlook for inflation this year - a crucial factor in the RBA's decision making - remains a point of contention.

The RBA maintains a headline inflation comfort zone of two to three per cent annually.

For some, the weak core measure in the March quarter suggests a sharp upward correction in coming quarters. But others remain confident the recent surge in the oil price, which has impacted headline inflation, has so far only had a muted effect on consumer prices.

JP Morgan chief economist Stephen Walters expects the RBA to lift rates in the June quarter.

"While a rate hike next week is possible, there is a strong case for the RBA waiting another month and tightening policy in June," Mr Walters said.

"Waiting the extra month allows RBA officials to track the path of oil prices and to see the contents of the budget and the next round of consumer confidence and retail spending reports to see how the battlers are coping with soaring fuel prices."

New low in US treasuries...pricing in more interest rate hikes.

Cheers

Here's a recent statistical view on the inverted yield curve: http://www.tradingeducation.com/blackman_pmd.asp

it's almost certain that a 25bp rate rise in the US early morning (our time) on Friday will be announced. although there is talk of a 50bp rise, don't bank on it...

"When there are very clear signs the economy is slowing, the stock market is soggy and the 10-year Treasury (yield) is at 5.20 percent, to pick up a hammer and hit the economy in the head with 50 basis points? That to me is not likely at all," said former Fed Governor Lyle Gramley.

Check out this article about how Uncle Sam is apparently pulling the wool over everyone's eyes, should the focus be on inflation or growth: http://www.kitco.com/ind/Schiff/aug182006.html

Well the story of the imminent collapse of the USD has been doing the rounds for the past 3-4 years, but it just hasn't happened. Maybe it will catch everyone unawares....

http://www.smh.com.au/news/business...y-us-withdrawal/2006/10/17/1160850931319.html

'Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channelled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates.

Mr Costello said "the strategy had changed" and Chinese central bankers were now looking for alternative investments.

I still retain half of my US Treasuries having sold the rest in the last 4 weeks. Interest rates are set to go lower in the USA and the US Dollar remains strong.


Have you voted yet at compareshares and if not, there's a chance in the next 8 days at http://www.thebull.com.au/the_stockies/forums.html

IMO we are setting up for a huuuuuge JPY rally.

Sooner or later (my guess is sooner) the floor will fall out from underneath the USD and it will drop like a rock. This (again, IMHO) will trigger the beginning of the end for the tightly wound yen carry trade, causing unprecedented demand for JPY (for essentially the same reasons), unlike even the current demand for USD.

sinner said:

IMO we are setting up for a huuuuuge JPY rally.

Sooner or later (my guess is sooner) the floor will fall out from underneath the USD and it will drop like a rock. This (again, IMHO) will trigger the beginning of the end for the tightly wound yen carry trade, causing unprecedented demand for JPY (for essentially the same reasons), unlike even the current demand for USD.

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Hi sinner, When you say Japan rally, do you mean interest rates there will go up as they cannot fall much, or do you mean the currency will strengthen. The Yen looks very strong already.

Don't forget: Voting continues at the link below and Aussie Stock Forums very much needs you.
http://www.thebull.com.au/the_stockies/forums.html

The 30-year yield has breached a key technical level, "which now opens the way towards [a range of] 2.44% to 2.47%," Citigroup Inc. analysts wrote in a research report. "We expect the yield move can extend in the medium-term."

US ten year yield now has a 3 in front of it with no real sign of any sort of bottom in bond prices.

That is still a very low figure considering the rate of inflation and I am of the opinion that Bonds will undergo some sort of a meltdown at some point when the vigilantes finally get the shyts with everything. FWIW