Interest rates saw a slight rise overnight, but are likely stable in this (as of post) 3.32% range. The European concerns have calmed a little bit; helped by an announcement from China that the Greece situation has not changed their plans for long term diversification into European Assets (read, my beloved Volvo brand, for one.) So the flow to US bonds has ebbed a bit.
Moreover, weighing down the prices is the $31 billion of seven-year notes (on top of the $40 billion five-years, yesterday.) Additionally, this relentless increase in US debt is beginning to trouble some in the investor sphere: The chief of Loomis Sayles Bond fund, Dan Fuss (whose fund outperformed 97% of the competitors last year) said yesterday, “The fundamentals are awful. The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury. Do you really want to buy the debt of the biggest issuer?”
You may notice the “red pill/blue pill” icon for today. This is largely on the previous observation. Dan Fuss not only renders this opinion, but has further divested of everything Treasury in his fund. His money is where his mouth is. Further, our own economic news did come in a little less than expected: More Americans filed jobless applications than expected, and economic growth (as well as consumer spending) was also lower than anticipated. We’ve written on this concern before: the reports that everyone is depending on, to anticipate how the US is doing, are governmental reports. Take them with a healthy dose of red pill. (And check back here in the morning.)
So… a bit of money has flowed from US back to Europe; and the weight of our own spending (i.e., bond sales) has also suppressed prices (which results in higher interest rates.) Technically, the next target upside is 3.42%, and we will move toward this number if all of the following remain in place today: Europe getting through it’s investment day with no adverse news, and US data and US equity markets pointing toward economic optimism (with US data already coming in cool.)
