Bond rally nearing an end?

Guys, did you see those huge sell orders on ZN between 107^12 and 107^14 ? What does that mean? The crowd is not expecting to go higher next days? Are not expecting to make new highs? Are we going to see some surprise from the FED tomorrow?

Bye.

 

Hi everyone,

I haven't read much in the news the last week about rate lock selling for corporate debt except Anadarko. Have all the planned issues completed?

Thanks

 

There was definitely rate-lock selling all last week, that is all the Greenwich Capital Markets desk was talking about, especially at the upper end of the range, from 107-05 to 10. Seems risks today are if Lacker is not a dissenter and statement is a bit dovish. Other than that business as usual at the Fed.

 

Call/Put Ratio on T-Bond Futures
The call/put ratio is an excellent contrary indicator. When it is high, it indicates that investors are buying call more heavily than puts, suggesting a high degree of optimism in the market. When low, it indicates a high degree of pessimism. A 10-day average of 1.30 or higher has correlated with overbought conditions, while a 0.9 ratio has correlated with oversold conditions.


Date CALL Vol. Put Vol. Daily 10-Day 1-Year
C/P Ratio Average Avrg.

6-13-06 143,420 108,966 1.32 .94 .86

5-31-06 39,777 36,119 1.10 1.02 .86

Futures Closed

6-13-06 108-10

5-31-06 106-07

 

Lacker appears to be somebody's lackey.

And todays put/call ratio ???

It's looks like we're getting close to a TOP

 

1:07 PM

If the Fed removes the following portion of the August 8th FOMC statement in today's statement, a big rally would likely occur. I don't expect this. Most don't.

Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Removal of the statement would suggest to some that the Fed is absolutely finished raising interest rates and that a rate cut is becoming more likely.

 

2:42 PM

The Fed's policy statement is almost identical to the statement issued following the August 8th FOMC meeting, but there were notable changes that make it clear that the Fed is not yet contemplating an interest rate cut and that it is far more interested in raising its inflation fighting credibility.

The most glaring change in the statement can be seen early on. The Fed dropped two of the three factors that in August it said had been moderating the pace of economic growth: interest rates and energy prices. The Fed cited only housing in discussing the economy continued moderation:

Today’s statement:

“The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.”

August 8th statement:

“Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”

The removal of the reference to interest rates and energy costs as drags on economic growth is a backdoor way of saying that these areas have become more stimulant of late. Whether the Fed wants such stimulus is something that we will learn from the Fed in the weeks ahead. At the very least, the removal of interest rates and housing from the negative side of the ledger appear reduces the likelihood that the Fed will cut interest rates anytime soon in response to these factors. Moreover, with the reference to housing standing in isolation and given the general lack of desire within the Fed to alter policy for the sake of a single sector, those expecting an interest rate cut in response to the housing sector’s weakness will have to wait for its impact to broaden much more than the Fed now perceives it to have.

The rest of the policy statement was as expected, with the Fed maintaining text identical to the August statement with the exception of an insertion of a statement indicating increased optimism about the inflation outlook owing to the recent decline in energy costs:

“…inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.”

Interesting was the second consecutive dissent from Richmond Fed President Jeffrey Lacker, who once again wanted an immediate rate hike, mostly because, as he has detailed in recent public remarks, he would prefer to boost the Fed’s inflation-fighting credentials. This was not a major surprise in light of comments he made in-between FOMC meetings indicating that he would render the same vote at that time. Nevertheless, had he pulled his dissent there would have been increased chatter amongst bond bulls that support for interest rate hikes was diminishing.

Again, in sum I feel that the statement increases the height of the hurdle that the bond bulls must climb, chiefly because the Fed sees fewer headwinds to growth and because it won’t cut rates to help a single sector (housing) of the economy until or unless that sector’s weakness broadens out

 

Great commentary. Thanks!

 

Its a financed based economy. It requires huge leverage generous credit expansion at all times. The fed knows should know that because they helped create it. If they really wanted to target credit they would be targeting the growth of credit which is above ten percent a year. The interventions spawn bubbles which require further interventions to rectify previous interventions. In the end it leads to hyperinflation and collapse.

 

The put/call ratio was almost 3 to 1 several days either last week or the week before, but the market has yet to break out of this monthly range. It was contrarian earlier this year as we traded to yearly highs in yield. Not sure what the signal is this time around, since we are at almost yearly lows in yield.