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Treasury & Bond market review (weekly), after 9th December, 2011.


I was looking into a news report which said about the potential civil unrest in Euro-zone, despite 26 of the 27 EU countries more or less have agreed to the deal for tighter budget rules. Italian and Spanish Yield rose in spite of the 200bn Euro help through IMF. 200bn or better to say 150bn Euro fund, but will it be enough for countries like Italy and Spain ?
Right now ECB has solved the funding problem for banks through that central banks effort in last week and thereafter by cutting the rate. But what about the sovereign debt problem ?  Can countries …….
ESM will be coming in force in July, 2012; I think time limit is too much considering the situation in financial market.
What I don’t understand that they are providing help through IMF instead of giving directly through ECB because of their laws, but why they did not grant banking license to ESM ?  Because it can easily borrow money from ECB and multiply its power.
Before that S&P episode Bond Yields in Italy were plunging into lowest level over a month, as investors were reacting on new austerity measures of Italian government and markets were also getting good news for changes in European Union’s treaty. In that time investors were also not rushing for German Bunds as a result of it German Bund Yields were rising, but all those things changed with that S&P warning. One thing is sure that world is gradually going into an era where there will be no AAA ratings. So in future we may see AA+ is the highest rating!


YIELDs   ( USA)
9-Dec,2011
12/2/2011-12/9/2011 (%)
11/25/2011-12/2/2011 (%)




2-Year Treasury
0.226
-10.31746
-8.36
5-Year Treasury
0.893
-2.9347826
-1.39
10-Year Treasury
2.065
1.12634672
3.97
30-Year Treasury
3.112
2.67238535
3.76

Treasury prices were suffering losses but later it recovered lot after that S&P threat. Yields were dropping in lower levels but in the last day it reacted on the EU summit outcomes.

Treasury & Bond Market forecast for coming week

It is sure that new deal provided some optimism in the market but it will be tough job for bond and US Treasury Yields to go higher levels. What I think markets have already discounted that 200bn Euro infusion, so coming days can be testing time for all. Most of the US Treasury Yields were following a trend line, which suggest more drops in coming days, though last day was different. It will be pretty interesting to see whether they will carry their last day move in coming week.
So 2-Year Treasury Yield is still following the trend line which I was talking during some weeks. Overall it is following a lower high and lower low pattern, which suggests that it will drop more in coming days. It has good support at 0.16 level. In the upside if it crosses 0.25.5–0.26 level then it will break the trend line. Thereafter in the upside it has resistance at 0.28.
5-Year Treasury Yield dropped this week, now it has to break 0.95 –1.00 level to cross the trend line.  If it crosses the trend line then it will get resistance at 1.20 level. If it follows the lower high and lower low pattern then it will test 0.80 level.
10-Year Treasury Yield is facing hard time to cross 2.10, if it crosses this range then it will negate the trend line which I said in the last day. If it breaks 2.10 then it will find resistance at 2.30. If it follows the trend line then 1.75 –1.80 is crucial support for it.
3.10 was acting as good resistance for 30-Year Treasury Yield. In the last day it was trying hard to cross that 3.10 and if things continues then it can break the trend line. Between all these Treasuries Yields, it shows the better chance to cross the trend line. If it breaks the trend line then it will get resistance at around 3.40 level but if it drops from here then it will test 2.80.
I will be waiting to see how rating agencies react in these new events after EU summit. It will be very interesting to see how things go if UK declined to sign up the new deal.
No one wants to see collapse of Euro-zone, either through agencies like S&P or by themselves.
One thing I don’t understand that when many are suspecting about the existence of Euro-zone, why not the big boys tries to change the laws and provide direct help for those problematic countries from ECB. Then like US Fed, ECB can also use their printing machines. If any negatives outlook comes for countries like Germany then it will be also difficult for not only Germany but also for those countries which are expecting bigger role of Germany in solving their debt crisis. In fact it will be a threat for EFSF.


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