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Thursday, August 11, 2011

Treasuries, The Bad Movie

This may be just a blip, but the long end moved today.

We'll just have to watch it. There was an auction for 30 year Treasuries today, and the bid/cover ratio was 2.08.

I prefer the text version.

Today was an extremely volatile day for everything, but here's the blurb from the Bloomberg Economic Calendar:
Extremely low yields may finally be stemming demand for Treasuries. Coverage for today's 30-year bond auction, at 2.08, is the lowest in more than 2-1/2 years. The auction tailed steeply with the high yield of 3.750 percent more than 10 basis points above the one o'clock bid which is a record. Another sign of weakness is that less than 1/3 of the $16 billion offering went to non-dealers in what is evidence of weak investor demand including weak foreign demand. Demand for Treasuries is falling in reaction to the results.
It's not clear that this really says anything about US instruments. We might want to compare to the German Bunds, which marched up today. I really don't like the looks of the short end there.

I believe that treasuries just came too far and too fast. Even after today's selloff, I'm up about 28% since February on my 30 year TIPS purchase.

I bought with the intent to hold until maturity and that continues to be my intent.

I do root for higher yields though, since I have a TIPS bond ladder and as TIPS mature I intend to reinvest. As a saver who holds TIPS to maturity, it would clearly not be to my advantage to root for lower rates.

Just opinions of course.
Put another way, I root for massive stock market rallies at about the time I'm buying TIPS in auctions.

February was the gift that just keeps on giving.
If you look at the German bunds the short end kind of looks contractionary. There may be a lot of people worrying about temporary factors.

Treasuries are so very liquid that normally yield changes shift right on up the spectrum, though.

I agree with you in an objective sense, but in an environment like this relative safety carries its own costs.

"I agree with you in an objective sense, but in an environment like this relative safety carries its own costs."

I've been budgeting for -2% real after tax investment growth of my nest egg and have been doing so since 2004. I based this on a 1970s environment that never ends and a Greenspan quote from 1966. Let's hope my optimism isn't too infectious!

The good news is that when you set the bar that low it is possible to feel better off over time. The bad news is that if we keep to the path we are on then at some point I may need to reduce my worst case expectations. Sigh.

"The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves." - Alan Greenspan (1966)
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