01.31.2012

Bonds Back In Business

01.31.2012

Despite no immediate shift in the daily pattern of equity trading, it appears the entire “risk on” momentum that has encapsulated the market has begun to shift.

Investment grade bond prices, including U.S. Treasuries, have been posting significant gains over the past two days. Disappointing economic data and the continuation of the European sovereign debt crisis have seen a shift in capital out of equities and into fixed-income.

Retail trading followed the path of institutions, ramping up the iShares Barclays 20+ Year Treasury Bond ETF (TLT) 1.35 to $120.85 a unit on Tuesday.

“The U.S. is experiencing negative real yields out to 10 years and some are now predicting the 30-year bond will join the club,” Kevin Ferry, managing director of Cronus Futures Management, told Markets Media. “Under normal circumstances, these structures would hurt the exchange value of the currency of the abusing nation.”

“In the reserve currency, there is the hope of further quantitative easing taking place; the fiat had a decent day against its Leper Colony brethren,” added Ferry. “The truth is the anomaly that bolsters the position of the U.S. in the world and aids both the economy and the bloated government in the short term. However, term structures in EZ are on red alert for adjustment and the gratuitous position of the U.S. should not be taken as preeminent – just look at TIPS.”

The 30-year T-Bond has soared above $145 in recent days, blowing past the $142.50 level seen around January 27. The 10-year note continued its meteoric rise above $132, up from $130 on January 25.

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