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Wednesday, June 29, 2011


Crude inventories isn't moving much. Under the circs that can be regarded as a good thing, I suppose, except these levels seem to show real economic trouble. I can't see persistent drops in YoY diesel without thinking it is a sign of recession. After a point the temporary becomes the average - but at least the average isn't moving that much.

Pending home sales really isn't moving much either. May was about at the Jan/Feb levels. March was high, followed by a crash in April, but that sequence was almost certainly due to a rise in FHA insurance premiums in mid April, causing people to rush it a bit and then a decline. I think we are bouncing along the bottom of the housing market in terms of activity this year. That doesn't mean in terms of prices - in many areas, prices will tend to drift down for years to come.

Mostly I'm watching Treasuries. Indications vary. Some of this is currency flux, as the commodities seem to be. Some of it is just plain nerves about what the result of QE2's end will be.

Trichet spoke a few days ago, using ECB-code for an interest rate rise. This is very definitely moving the currencies. This weekend the various European finance groupies get together and try to orchestrate a Greek sovereign voluntary rollover deal. To be lined up and have your pocket picked while being forced to shout "Please sir, may I have another!" so the ratings firms don't clean you out is not going to improve your appetite for bad debt.

I would think that investors are contemplating US obligations with a mind to the result of not contemplating Greek obligations. Admittedly there is more time for the US, but that doesn't mean 20 years. A lot depends on the debt figures Congress comes up with. So in a way the Greek tragedy and the US farce are conjoined. The end of the Greek tragedy is uncertain. The US farce is just the first act.

Major Action in Treasuries continues. Look at the 7 year auction:
Treasury supply may finally be getting ahead of demand. That's a conclusion that can reasonably be drawn from this week's poorly received string of coupon auctions including today's $29 billion offering of 7-year notes. Coverage of 2.62 is light for this issue while the high yield of 2.43 percent is three basis points over expectations. In a sign of weak retail demand, dealers ended up taking down an outsized 56 percent share of the offering. Demand for Treasuries is sinking following today's results.
It's been weakening. The longer terms are suffering; bid/covers on the shorts this week were just fine. The four week on the 28th had a bid/cover of 4.57 and a yield of 1/2 a basis point. (0.005). The 52 week at the same time and same day had a bid/cover of 4.15% and a yield of 20 basis points (0.20). An hour and a half later, the 5 year had a bid/cover of 2.59 and a yield of 1.5%. Compared to earlier auctions this year, this is a definite move down in demand.
Look at today's trading.

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