• Home ::
• Technical ::
• Market View ::
• Currency Speculations

• Send
• Print
• Add To
• Rss

Currency Speculations

3ca10b3d-b2e4-4a12-86d6-1716962c0c49

0

0

Yields' New Conundrum

Sat, Jul 7 2007, 12:26 GMT
by Mihai Nichisoiu

Mihai Nichisoiu

According to Bloomberg.com (July 2nd), 'JPMorgan says investors in Treasuries are the most bullish in more than five years. A weekly index by the third-largest U.S. bank, which subtracts the percentage of investors expecting bonds to fall from those forecasting a rise, reached 31 for the period ended June 25, the highest since a reading of 36 on Jan. 7, 2002'.

And yet, I stay reminiscent of the dive in US note and bond prices synchronized with a run-up in yields which hit the financial markets across the board in early June - an event which mainstream media could not yet deconstruct.

For example, in the article titled 'Global Rate Increase Yields Haze of Explanations' published on Bloomberg.com on June 14th, Caroline Baum writes:

'We in the media are forced to explain these events, often tripping over ourselves in the process.'

'The sentiment shift was stunning to behold and difficult to explain.'

'Ultimately the rise in market interest rates will be limited if it's not supported by the fundamentals. And the fundamentals only reveal themselves with time (and maybe data revisions).

That's one reason technical traders pay no attention to news or statistics, gleaning all the information they need from price charts and momentum studies.

That isn't to say that candlesticks patterns and relative strength indexes always predict the future accurately. They don't.

It's just that fundamental arguments have a way of coming back to haunt us. Just when everyone thought the global saving glut was a satisfying explanation for historically low long-term rates, higher rates come along to spoil a good theory.'

All the more intriguing - at some point in an article titled 'Not so risk-free' which appeared in the online edition of The Economist on the same day of June 14th, with regard to the early June slump in bond prices one could read, '(...) economic fundamentals may not be the primary cause for the sell-off'. That's an interesting premise for a text published in The Economist.

I wonder whether the recent run-up in global yields actually spells out a perfect illustration of what I published on my own website on May 30th:

'When huge trends are being reversed, more often than not the initial counter-trend movement will lack a fundamental rationale. Only in the later stages of the new trend, the crowd will associate what is commonly known as a prevalent fundamental theme. That is, when the new trend is young, there will be a positive rate of growth in price action but the crowd will miss the fundamental reasoning - whereas in the late stages of the trend, there will be a negative rate of growth in price action (most popular price indicators will start diverging with price action) but the crowd will manifest an increasingly confident frenzy about the prevalent fundamental theme.'

BusinessWeek's cover story of February 19th uttered ''It's a Low, Low, Low, Low-Rate World' (subtitle was 'Why money may stay cheap longer than you think').
Big question remains, does that cover ultimately herald a major shift in the global financial markets (not just global yields) - much like in the way some of David Lereah's publications came out at the onset of remarkable trend changes like the collapse of the dot-com bubble or the bust of the housing market in the US?

The near future, I believe, nearer perhaps than in most expectations, may be entirely willing to show us.

Published on  Sat, Jul 7 2007, 12:44 GMT