With Treasuries Repriced For a Fed On Hold, The Bulls Are Back
“For equities, and for the bond market in general, this may come to be viewed as merely an adjustment – a restoration of the old relationship between Treasuries and the federal funds rate – and they may be calmed by that.”
– Tony Crescenzi (subscription required), Chief Bond Market Strategist, Miller Tabak
“The Treasury market is in an area that we think represents great value …. particulary for intermediate to long term portfolios.”
– Bill O’Donnell (subscription required), Rate Strategist, UBS
Can you hear it? How about now? Listen closely…. Sshhhh…… Off in the distance….. getting closer…… It’s the running of the bulls!!!! The bulls are back!!!!!
With the yield on the 10 year treasury stabilizing today, it is starting to look like the spike upward in Treasuries we’ve seen over the last month, and especially over the last week, is done. The treasury market is now re-priced to reflect the belief that the Fed is on hold for the foreseeable future.
Capitulation n. : The act of surrendering or giving up.
“A good word to describe all this is capitulation.”
– Jason Evans (subscription required), Head of Government Trading at Deutsche Bank in New York.
On Tuesday, Goldman Sachs “ate crow” and rescinded its forecast for interest rate cuts this year.
Late yesterday (Thursday), in the midst of a major sell-off, word hit the wires that renowned PIMCO bond manager Bill Gross had become a bear on bonds after being a bull for 25 years.
And now, today, Merrill Lynch has also dropped their forecast for Fed interest rate cuts later this year, now expecting those cuts not to come until 2008.
Everybody whose been looking for a rate cut this year, all those bond bulls, have already capitulated. The 10 year has rallied to a price that reflects the expectations for a Fed on hold and rate cuts that, if they come, won’t until 2008.
That means that the rising interest rates that have put a real beating on the market the last three days are themselves out of steam. That means: The Bulls Are Back!!!!!
It happened around 1:30pm EST as the Dow pushed through its intraday high from the morning and added another 50 points or so within a 45 minute period.
Here’s how things look now (2:30pm EST):
Dow: +97, 13,363
S&P: +11, 1502
10 Year: -.023%, 5.118%