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Weekly Treasury & Bond market review after 11th November, 2011.


At past 7% was that figure for many PIG countries, when they have started to think about alternatives. In spite of some assurance about Berlusconi’s resignation, it was quite surprising that Yield of 10-year Italian Bond yield went above 7%. Now to cover the increased risk it is quite natural that clearing houses will ask for more deposit to trade on Italian Bonds and that has created more panic this week. Italian senate passed austerity measures and now all the attention will be on their lower house, which may decide it’s fate today.
Most of the US Treasuries were flat this week.


Yields
11-Nov,2011
11/4/2011-11/11/2011 (%)
10/28/2011-11/4/2011 (%)




2-Year Treasury
0.226
-3.41
-20.13
5-Year Treasury
0.905
0.22
-20.44
10-Year Treasury
2.052
-0.67
-11.17
30-Year Treasury
3.108
-0.67
-7.48

Euro-leaders are concentrating more about austerity measures but I have doubt about these efforts. Euro-economies are already growing less and in this situation if consumer starts to spend less then how the growth situation will improve ?
Japan bought 300m EURO of Bonds, that is small comparing to what they bought in past. What I think Japan is doing this not because Euro-area is a big export market for them but they are also considering the YEN-EURO relation and overall their foreign exchange reserve.

At past, I wrote many times that I will not surprise if rating downgrade comes for countries like France and UK. Unless there was a fire, this type of smoke couldn’t come. Here we shouldn’t forget that France has the highest Government Bond Yield among the AAA rated countries in the region.


Treasury & Bond Market forecast for coming week


Though Yield of Italian Bond reduced from that more than 7% level, but there is no guarantee that it will not again climb into higher levels. I think one matter that may complicate the thing which is, what is next after Berlusconi ?  Obviously we should remember that mid-November time for Greece, let see how they manage things in coming week.
There were not much change in 2-Year Treasury Yield, it was very flat this week. So around 0.20 is a support for it and on the upside it has a good resistance at 0.30 level.
5-Year Treasury Yield is still testing a crucial 0.90 – 1.00 level; now in coming days if it breaks 0.80 level then it can drop more. 1.50 area is still a target for it in the upside but before that it has to test 1.25 level.
10-Year Treasury Yield is testing around 2.00 support level, if it breaks that then it can test 1.80. On the upside it has resistance at 2.30 level.
3.30 was good resistance for 30-Year Treasury Yield and it is now getting support at 3.00 areas and it can test level up to 2.80. Now we can only expect up move, if it breaks 3.30-3.40 level.
Treasury plans to sell $92 billion bills in next week.

Sometime I feel probably this is the best time for the supporters of Euro-Bond to strong their voice. I think that Euro-authorities may be thinking about Euro-Bonds in this moment.
At this moment things will be worse if Yield stays there for long, considering the huge debt of Italy. Italy has 1.9 trillion EURO in government debt which accounts for 25% of Euro-zone debt, where as Euro-area bail-out fund is for 1 trillion EURO (?), so we can completely forget about that. The problem I think that Italy has to repay it’s debt in 2012, how long private sector will keep their faith on Italian Bonds ? Now if it cannot borrow that amount from market then how those money will come ? We have already seen that proposal to hike the IMF’s resources was unsuccessful, so everyone is expecting bigger contribution from ECB, than just controlling inflation ?



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