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Week ended 22nd April, 2011 – Treasuries & Bonds this week

First let see the performance of Treasuries  –


Yields
22th-Apr-2011
4/15/2011-4/22/2011
4/8/2011-4/15/2011




2-Year Treasury
0.661
-4.47%
-14.46%
5-Year Treasury
2.11
-0.51%
-7.86%
10-Year Treasury
3.402
-0.26%
-4.61%
30-Year Treasury
4.473
0.08%
-3.74%



US has been warned by Standard & Poor's  about it’s Government Debt , as they have change their  outlook from stable to negative . As a result of this downgrade there were some fear around all the financial markets .
As such many investors bought lot of Treasuries . But later days of  the week that fear reduces . 
Treasury gains were not much this week due to advancement of stocks on better than expected corporate earnings . 10–Year Yields decreases on the speculation  that if Government decides the budget cuts then it can slow the economy . The difference between the yields of 2-year and 30-year is quite lot . Investors are buying short-term treasuries than longer term .  On the other hand this week gold is probably has similar movement with 10–Year Treasury .  


Japanese government has announced a $48.9 bn. Emergency budget as relief package for natural disaster . Government said  that they will  neither issue bonds nor borrow money from the markets for this fund . It will be very interesting to see how they fund this amount . It is necessary here to say that Japan has a debt burden of  twice the size of the economy . This week there were not much change in the yields of Japanese bonds .

Greece’s economic problem is not decreasing at all , on Thursday yield it’s 2-year notes rose to 23.32% , this is it’s highest level since 1999 . Portuguese 10-year government bond yields rose to record high of 9.43% .  Ireland’s 10-year bond rose  to a record level of  10.48% .
German Bunds are getting advantage in this moment due to Standard & Poor’s negative outlook on U.S. , many experts are thinking it an alternative to U.S. Treasuries . It’s 10-year Bunds yield was down to 3.27% which shows lot of thing . In coming week it is going to auction 6 billion Euros of 10-year debt .


Coming week for Treasuries & Bonds

Canada’s inflation rate rises in March which may increase pressure on Bank of Canada to raise interest rate in coming future .
China can again buy some European Government debt , China has already bought Spanish and Greek debt . EU is the biggest trading partner of China and huge amount of it’s foreign currencies are in EURO . So it is quite natural that any harm to Euro area will effect China .

For 10-year Treasury yield , 3.30 is a good support ,  now if it breaks that convincingly then it may go close to 3 or even more in the downside  . 30-year Treasury is finding support around 4.45 area , if it breaks it then it may be heading for the pattern which I was talking in last day . Last day 30-year Treasury yield was decoupling with other Treasury yield , it is quite interesting that how it decouples from others . May be investors are not buying much of this long-term  Treasury .
Next week  $155 bn treasuries are due for sell . U.S’s borrowing limit will  end in May 16 ,2011 , later only Emergency measures can provide borrowing room . So what is next !

But aren’t  these rating agencies are those who gave superior ratings to those failed banks ( Lehman , Bear Stearns e.t.c. ) during sub-prime crisis , around 2008 !      So this time there are two conclusions –

1)     Ignore these outlooks or rating downgrades .
2)     Or , they may be smelling something before and this time they don’t want to repeat their mistake .

Choose one .

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