US bonds sale faces market resistance

click on chart to enlarge

This could be a week of major inflection in financial markets. If these bond auctions are poorly recieved, the dollar and bond market will continue to tank. The above chart shows the rising yield on the 10 year U.S. Treasury bond. I suspect this chart is keeping both Ben and Timmy up at night. Rising rates is their worst nightmare.

If, as I expect, foreigners decide to pare back their participation in this week's auctions the Fed will have to monetize a huge portion of the debt. If this happens the financial markets will react accordingly. The dollar (very oversold), stocks and bonds will decline and yields, gold and other commodities will rise. The stock market is begining to look tired after it's historic bear market rally of the last few months, it will not take much to push it off it's overbought perch.

I expect the market to resume it's primary bearish trend any day. I for one have established a short position in financial stocks (SKF) and long dated Treasurys (TBT) while increasing my long position in oil (USO) and select resource stocks. This holiday shortened week should be quite interesting, stay tuned.-Lou

US bonds sale faces market resistance

The US Treasury is facing an ordeal by fire this week as it tries to sell $100bn (£62bn) of bonds to a deeply sceptical market amid growing fears of a sovereign bond crisis in the Anglo-Saxon world

The interest yield on 10-year US Treasuries – the benchmark price of long-term credit for the global system – jumped 33 basis points last week to 3.45pc week on contagion effects after Standard & Poor's issued a warning on Britain's "AAA" credit rating.

The yield has risen over 90 basis points since March when the US Federal Reserve first announced its controversial plan to buy Treasury bonds directly, a move designed to force down the borrowing costs and help stabilise the housing market.


The yield-spike may be nearing the point where it threatens to short-circuit economic recovery. While lower spreads on mortgage rates have kept a lid on home loan costs so far, mortgage rates have nevertheless crept back up to 5pc.

The Obama administration needs to raise $2 trillion this year to cover the fiscal stimulus plan and the bank bail-outs. It has to fund $900bn by September.

The US Treasury is selling $40bn of two-year notes on Tuesday, $35bn of five-year bonds on Wednesday, and $25bn of seven-year debt on Thursday. While the US has not yet suffered the indignity of a failed auction – unlike Britain and Germany – traders are watching closely to see what share is being purchased by US government itself in pure "monetisation" of the deficit.

Read More:
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5379733/US-bonds-sale-faces-market-resistance.html