Bond Vigilantes Back

I hope that you all enjoyed your 4th of July celebrations and BBQ’s. While we were barbequing in our back yards and parks officials across the pond were busy promising more easy money. That got European markets hearts all aflutter and up about 2.5 -3 % across the board. The reason that European officials chose to speak up was due to rapidly rising bond yields, particularly in Portugal. That had officials on edge and feeling the need to speak up. Mario Draghi head of the ECB promised to use the OMT if necessary. To refresh your memory the OMT is a plan that does not even exist. It is just a future promise to step in if things get nasty. How long before the Emperor is seen as having no clothes?

It might not be much longer in light of this morning action here in the US. Fresh off our 4th of July celebrations market players came back to more easing in Europe and rising markets. The jobs report this morning had junior traders excited. Junior traders love to buy markets. Older more experienced hands have a more cynical bent and there tends to be more short sellers amongst their ranks. The junior traders forgot to check with the boss and their bosses’ boss – the Treasury market. The stock markets older, much wiser brother, the bond market, had broken decisively through the 2.5% yield on the 10 year rising to 2.68% as we write. After rising more than 100 points off of the open the stock market has faded rapidly since. Good news is now bad news.

Keep watching the yield on the 10 year. The yield on the 5 year is now 1.58%. That was the tield on the US 10 year weeks ago. Has the Fed lost control of the bond market? Geopolitics are now playing a role with the army now in charge in Egypt. The Suez Canal moves a lot of crude. Prices are getting a boost.

1620 on the S&P is now proving difficult to surmount. The bears are out. Look to see how this one closes. The more experienced hands will be back on Monday. This could be a key moment to see how the bond market responds to the latest data. It looks like the September FOMC meeting is gonna be a big one. We think that the Fed will be forced to pull back on QE and announce it then. Bernanke wants to do it on his watch and that is the last meeting before Christmas. He doesn’t want to be Scrooge but more importantly he is also cognizant of year end funding issues.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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Published in: on July 5, 2013 at 9:51 am  Leave a Comment  
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