Thursday, April 26, 2012

More on that Treasury Blood Bath

Just about a month ago when everyone was calling the end of the 30 year bond rally, I noted.
While any sell-off has the potential to become the large sell-off EVERYONE has been waiting for (economic data is improving, yields are very low, inflation is ticking higher), I am not yet convinced it's the sure thing these "experts" want you to believe.

But, I guess if you keep making the same prediction, eventually it will come true.
Apparently, we need to keep waiting.

A weak (and deteriorating) Europe, low inflation, low growth, an uptick in risk-asset volatility, and continued piling into the asset class by investors (mutual fund flows remain positive), businesses (looking for yield on cash), and government entities (QE) have not only supported the asset class, but made it one of the top performing asset classes month-to-date.

Source: Barclays Capital


  1. So when Spain needs a bailout (as many fear)and the ECB needs to generate dollars to buy SDR's from the IMF, would you expect there to be a disruption in the treasury market? If the pundits are right about Spain needing several hundred billion then wouldn't we expect the dollar and treasury's to weaken as central banks liquidate holdings?

  2. Only if that reaction is larger than the piling in by everyone else (including the Fed).

  3. Right, I agree. I would tend to believe that central banks in Europe would have to take coordinated action and would have a large and immediate impact.

  4. Europe's holdings of Treasuries isn't all that massive:

    My personal opinion is that European central bank selling would be smaller than a firm such as PIMCO's buying in that type of situation. $100 billion of buying is less than 10% of their assets and my understanding is they have a massive underweight they would need to cover.