John Kemp

John Kemp's Profile

U.S. benchmark bond sell-off accelerates

May 28, 2009

Benchmark 10YR US Treasury bonds continued to sell off heavily yesterday, sending yields to the highest level since Nov 2008.  
 
The adjustment in the US Treasuries market is THE story in financial markets, and will wash across all other asset classes. 
 
The key question is how to interpret it:
 
(1) Is this simply an unwinding of the unsustainable “bubble” that had emerged in US Treasuries during the flight from risk, that is now gradually deflating as risk aversion ebbs.  If so, the movement should be fairly limited and could be interpreted as part of the “normalisation” of financial conditions. 
 
(2) Is it the start of a flight away from Treasuries as fears about inflation and record issuance and debt levels trigger a fundamental reassessment — in which case the move could be much larger and far more destabilising. 
 
Either way, this is the single most important story for all asset classes at the moment — with washover into FX as well as equities and commodities.

Comments

“(1) Is this simply an unwinding of the unsustainable “bubble” that had emerged in US Treasuries during the flight from risk, that is now gradually deflating as risk aversion ebbs. If so, the movement should be fairly limited and could be interpreted as part of the “normalisation” of financial conditions.”

My view has been that, for QE to work,especially against Debt-Deflation, you need short term interest rates to stay low, while you need long term interest rates to rise. In terms of incentives, you want to attack the fear and aversion to risk, by having a disincentive to buy short term bonds at no yield, the flight to safety, giving a push towards stocks and corporate bonds, and you want rising long term interest rates, signaling confidence in a recovery, as the spread is widening, and giving an incentive for longer term investing. It seems to be working.

I think that this is the first post that I’ve found that at least posits this position, but I thought that this is what Bernanke was aiming for when he said that he wanted to attack the problem of the fear and aversion to risk. Quite frankly, the longer and shorter term rates moving in tandem doesn’t make sense to me, unless you’re trying to work simply on mortgage rates, which to me is a bad idea.

 

I don’t think right now we should. I also don’t blame the Union members. I think the blame, not that it will help, but it should go to the CEO’s and the extremely high prices of vehicles.

 

We are screwed wherever we live. Detroit is just one of the first in line. Gotta wonder whether the workers will be happy their union wouldn’t budge. I would sooner take a lower salary, and work for less pay, and hope I get a raise in the future when things get better. If someone said you are going to lose your house, but I will save it if you lower your heat, and drink more water instead of juice…To me its a no brainer.

 

prada outlet…

welcomes toprada outlet http://www.pradaoutletsite.com/ web…

 

mulberry outlet…

welcomes tomichael kors outlet…

 

lawomjyg…

U.S. benchmark bond sell-off accelerates | Journalist Profile | Reuters.com…

 

longchamp outlet ma…

Blocking Pitch DrillIn this drill, a mentor stands about 30 toes before household plate and can throw one particular hoppers inside the dirt to the catcher to ensure that he can increase his ability to block these pitches and keep them in front of him….

 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  • About John

    "John joined Reuters in 2008 as one of its first financial columnists, specialising in commodities and energy. While his main focus is on oil markets, he has written broadly on the emergence of commodities as an asset class, regulatory issues and macroeconomic themes. Before joining Reuters, John spent seven years as a senior analyst for Sempra Commodities (now part of JP Morgan) covering base metals and crude oil. Previously, he worked as an analyst on world trade, banking and financial regulation for consultancy Oxford Analytica."
  • Follow John