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Treasury & Bond market review (weekly), after 16th December, 2011.


I am not sure but someone said me what Christian Noyer, head of French central bank and French Finance minister said about UK, in comparison to French economy for the matter of downgrade.

1)    UK has bigger deficit, close to the level of Greece.
2)    Much debt.
3)    More inflation.
4)    Weaker growth and bank lending is collapsing.

What I think that markets are measuring the weaker one by their 10-year government bond yields, which is higher for France than UK. But most important thing as I said in past that, UK has many money printing machines to repay their debt which France doesn’t.

Some Italian leaders are very anxious about austerity measures but as I said in past that I have still doubt that how useful those measures will be for an economy, especially now after the rate cut !  I think the ultimate challenge for Monty will be the raising money from market in coming year. Italian and Spanish Bonds rallied in the last day on the hope of better outcomes from EU meeting in 19th December for funding crisis.
US Treasuries were biggest gainers as investors are finding it as only safer option due to concern over Europe. US consumer price reports in November provided more confidence in the mind of investors about its gain.

YIELDs   ( USA)
16-Dec,2011
12/9/2011-12/16/2011 (%)
12/2/2011-12/9/2011 (%)




2-Year Treasury
0.226
0
-10.31
5-Year Treasury
0.799
-10.52
-2.93
10-Year Treasury
1.847
-10.55
1.12
30-Year Treasury
2.849
-8.45
2.67

What I think that there must be some buying is coming in long-term Treasuries, may be operation Twist is in action. In October China reduce its net holding of US Treasuries where they were net buyers in September, 2011.
It is good to see that after many years some CEOs Fannie Mae and Freddie Mac are paying the price for their misstatement or what so ever they did during sub-prime crisis.



Treasury & Bond Market forecast for coming week

In the last day Moody’s cut Belgium’s rating and Fitch lowered its outlook on France and put the grades of some of the nations on review for possible downgrade, now these things will going to create more panic in the market and we may see more shift of investments from riskier assets to safer heavens like Bonds and Treasuries.
So the Yields of US Treasuries may follow the same trend of lower highs and lower lows, which they are following during some weeks.
2-Year Treasury Yield is still following the trend line of lower highs and lower lows. Now if it breaks 0.245-0.25 level then it has a chance to come out of that pattern. Last days closings did not reflect any chance of reversal but if somehow it goes up then it will find initial resistance at 0.27.
For 5-Year Treasury Yield the level is 0.90-0.95, if it crosses that level then it can try to break the trend of lower highs and lower lows. Therefore it will get immediate resistance at near about 1.00 level. In the downside it has resistance at 0.80.
For 10-Year Treasury Yield the level is at 2.00. Look like 10-Year Treasury Yield drops more than others in comparison to the breaking point. If it breaks that level then it will get initial resistance at 2.30 level.  In the downside it has support at around 1.75-1.80 levels.
30-Year Treasury Yield was best to cross the lower high and lower low pattern among all other Treasury Yields, but anyway it was not successful. Now if it breaks level around 3.00 then it will come out from that pattern, then it will get resistance at 3.40. In the downside it has support at 2.80 level.
I think in coming days European problem will not reduce, as I said in last week that isolation of UK may create problems. What will be the situation if UK tries to gather support for them?  That equation of 26 + 1 can easily change into 21 + 6 or any other equation. As I listening news from different sources that a new problem is emerging that is opposing Germany’s role or as they are saying German dictatorship. Look like when bad phase starts, it just comes ………….


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