Skip to main content

Treasury & Bond market review for year 2011 & forecast for year 2012.



Last week ECB’s step was better as they are thinking bigger angle of that cheaper loan, as such it will save the Euro-zone banks from collapsing, they take PIIGs debt as collateral which ensures that those banks will not sell them and ECB is also expecting that banks will purchase more PIIGs Bonds. As I said in my weekly review that it is one type of QE for Euro zone as the amount is quite large (489bn Euro). I think it is quite similar to US efforts after 2008 financial massacre.
Let see the yearly change of 10-Year Bond Yields of different PIIGS countries.


Country
Current
Yearly Change (%)



Spain
5.38
0.85
Peru
6.76
1.24
Hungary
9.37
2.19
Italy
6.98
2.82
Portugal
13.2
6.45
Greece
34.95
23.56
(Amount in aprox. Figure.)

In Italy, Monti magic has already priced in as their Bond Yields again approaching 7%, though things were different in this week. Monti must be realizing the great danger that is waiting for them in 2012, when they will sell 440bn euros of debt. At this moment it is better if we think less about Greece and their Bond Yields.

US Treasuries saw a huge inflow of investments due to Euro zone crisis. In this matter it has only competitor, which is gold. This demand created a big rally in US dollar and Treasuries, in spite of the threat of rating agencies.

YIELDs (US)
30th Dec, 2011
12/31/2010-12/30/2011 (%)
12/31/2009-12/31/2010 (%)




2-Year Treasury
0.239
-60.3
-47.19%
5-Year Treasury
0.832
-58.5
-25.24%
10-Year Treasury
1.871
-43.16
-14.15%
30-Year Treasury
2.888
-33.33
-6.47%

US Treasury Yields were down during last two years, importantly 10-Year US Treasury Yield closed below 2.

In my past posts I repeatedly told that a joint action is needed against these rating agencies,   why!
Let see the Debt-to-GDP ratio of some countries –

Country
Debt-to-GDP ratio


Euro-area
85.1
Iceland
87.8
Portugal
93
USA
93.2
Ireland
96.2
Belgium
96.8
Singapore
97.2
Italy
119
Greece
142.8
Japan
220.3
(Amount in aprox. Figure.)

Am I weak in math!  Because I don’t understand who is in worst condition Greece, Italy!  Or Japan?   As I said in one of my past post (World Equity Market: Who is going to bail out Japan !) that Japan is facing lot of problems and now if someone thinks that Japan is financing most of its debt domestically then that rule must apply to all. I am not sure that whether we are going to see Japanese debt crisis in year 2012 replacing the Euro-area sovereign debt problem! But works of rating agencies are not something which is ……

Now let take another example, this year S&P downgraded USA from AAA to AA+, but still now US is one of the best place to park assets, investors are choosing US Treasuries as one of the best safe heavens. Then, what is the significance of that downgrade of S&P?   Or we have to wait more for it?



Treasury & Bond market forecast for coming year 2012.

As we know that there were some sign of decline in China’s US Treasury holdings and China is diversifying their reserve in other areas like gold. But still there is demand from other countries.

Country
Jan, 2011
Oct, 2011
(%)




China
1154.7
1134.1
-1.78
Japan
885.9
979
10.5
U.K.
278.1
408.4
46.85
Oil Exporters
215.5
226.2
4.96
Brazil
197.6
209.1
5.81
(Amount in aprox. Figure.)

From middle of 2007, 5-Year US Treasury Yield is making lower lows. But now its downside is limited. 5-Year Treasury Yield is trying to make a double bottom; if it acts on it then it can go up to 1.60. But then testing 2.00 or higher levels will be a challenging task for it. In the upside 2.50 is a very important level for it but it is too much expectation for now. First, I will be waiting to see how it tests 2.00 levels.


During nearly 1 decade, 10-year US Treasury Yield is making lower high and lower low pattern. If it follows the same trend then in coming years it will make more lows, may be around 1.50 ranges. But looking at its past years, I don’t think that it will fall in coming year. Some technical indicators say that it may turn around. Chart pattern says that it has a chance to test 3.00 if any reversal happens. So 1.5 to 3.00 is important range for it.

Looking at the chart pattern of 30-Year US Treasury Yield during last couple of years, it looks to me that it has a chance to go below 2.40, may be around 2.20-2.20 level. Right now it is trying to form a double bottom, though it is not clear. So if it is true then in the upside it has a chance to go 3.80 then it may test higher levels.

Euro zone has to repay or roll around 1.1tr Euros in first half of 2012. Things may not be much problematic for Spain and Italy to refinance their debt due in 2012, if they have to pay higher interest rate. This Thursday day Italy borrowed money at a rate around 7% for 10-year Bond, so they must be worried in 2012. Let see the debt which are due in 1st quarter of 2012.

Country
 Jan,2012
 Feb,2012
 Mar,2012
 Apr,2012





Italy
15.6
53.1
44.2
44.5





Spain
9.2
14.5
8.8
22.7
(Amount in Euros and in aprox. Figure.)

I will be expecting some sound confirmations form the Euro area leaders about Euro-Bonds in 2012. In my earlier posting, I told many times that main problem I think is the liquidity. In future private investors would not suffer anymore pains, so therefore options are limited for ECB. What looks like that we may see another US type bail-out for Euro zone banks. Where from these moneys will come!   Like US it will be the taxpayers of Euro zone. Now it will be matter to see that how many Europeans support that step!  

QE is going to come; now it will be from one side or both side of the Atlantic, it is still uncertain. I think US Fed is little silent, as it is not acting, which are making lot of hopes in the market about future QE…..



NOTE :  Please see the disclaimer below this blog .

Comments

Popular posts from this blog

DAX forecast for coming week ended 15th March, 2013.

This week was very good for Dax, though it is getting resistance at 8100 range. Now it has a chance to test downside again. I think even if Dax tests lower levels, it has more chance to bounce back from around 7800 range and therefore it will again test upside.

On the other hand if it shows flat movements around 8000 range in initial days of the coming week then there is a chance that it may take a decisive call in later days. Considering the recent trends it has the chance to test higher levels may be around 8200 but that will be a very aggressive call after taking in to account the movement from last December. I will worry about the downside when Dax will be testing levels below 7600 ranges.
NOTE: Please see the disclaimer of this blog.

Fed’s rate hike Vs Sovereign rating up gradation

Financial market is very much worried about the rate hike in US, probably this is going to come in coming December. But I think that is not going to change much of the things. Even Fed hikes rate in December it will be not so much, because we are forgetting one thing that interest rate in US is around zero so even they hike rate by 0.25-50% basis points (at most) in this year that will not be enough cause for Dollars to change their locations around the world especially markets have already discounted this coming rate hike in US.

A new disaster is coming in EU banking sector, whom to blame, big Audit firms!

First I was thinking what should be the title of this posting? Will it be good if I write that big audit firms set the time for EU bank collapse! If someone is thinking that financial crisis is over then think twice because the coming EU banking crisis is no way less than 2008 financial crisis. The time bomb will explode at some point of time in future, the time has not yet set for it. In that tsunami, forget about the smaller if any major banks collapse then I will not be surprise.