Treasury Yields Continue To Rise!
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In This Issue.

* Dollar rally continues.

* Gold & Silver get whacked again.

* RBNZ leaves rates unchanged.

* Aussie job creation continues!

And, Now, Today's Pfennig For Your Thoughts!

Treasury Yields Continue To Rise!

Good day... And a Tub Thumpin' Thursday to you! I understand that the Pfennig's format has changed, and that there's a spacing problem between paragraphs or thoughts. I'll try something different today and see if that corrects this problem. UGH! I wish I could say I would get my "crack team" on it, but, it's just little old me. HA!

Well. there was no direction change yesterday, the dollar rally that began around mid-day on Tuesday, bucked the recent trend of one day rally, next day selling, and rallied throughout the day, with Gold and Silver getting whacked the most. Ever since Gold hit $1,430, it's been nothing but selling of the shiny metal. Is this the end for Gold's rise? I hardly think so, but, who knows?

One thing that acts as Gold's kryptonite is a higher interest rate in the U.S.. and while the Fed Funds rate remains near zero, we're beginning to see U.S. Treasury yields rise. Sure this could be yet another head fake for Treasuries, and then people would be standing around the bar calling me the boy who cried wolf yet again! But, just to be prepared for a continued sell off of Treasuries, I think I'll dust off those short Treasury trades that have taken on water for so long now.

OK. that sounds as if I'm ready to throw in the towel on Gold. Hardly. but, these rising Treasury yields are beginning to really make people sit up and notice. I mean for the first time in a very long time, U.S. Treasury yields are greater than those in the Eurozone! Now. this takes me back to the days when I was a bond trader. Yield differentials between countries were played all the time! I can remember telling the sales group: "We can get 25 BPS more in a New Zealand bond than we can get in a Spanish bond, let's get those trades done"

Now. we did see the dollar get sold a bit in the Asian session last night, but when London took the reins they bought dollars, and so here we sit on this fine Tub Thumpin' Thursday, with the euro hanging by a thread to 1.32. The higher yielding currencies are faring better against the dollar, and that fact brings me right back to the yield differentials again. Folks, this is big stuff, IF, it can continue, for yield differentials used to be the thing all traders looked for.

You know me. I think the Fed/Cartel/Bernank has done us wrong, and this isn't just a slam at Big Ben Bernanke. I used to harp about Big Al Greenspan for years before Big Ben came along. Long time readers know that I pointed the blame finger for almost all of the financial meltdown on Greenspan, and his fellow Fed Heads. Nothing that I've found or read since then has changed my mind either!

But now comes this Bloomberg Poll. When asked if the Fed should be more accountable to Congress, left independent or abolished entirely, 39% said it should be held more accountable, and 16% said that it should be abolished entirely. Folks, only 37% of the people surveyed favor quo.

I remember making a presentation years ago, about how the U.S. would have been better off without a central bank, or the Fed. I should go back and dust that one off. but then again, with the "new me" , I'm not allowed to speak badly about the Fed. So, don't egg me on. I won't do it!

So. changing horses in the middle of the stream here. Down Under in Australia, where it's now nice and warm and summer is near, the job creation continues. For the 8th consecutive month, Australia added jobs in November. The Unemployment rate fell from 5.4% to 5.2%, after posting 55,100 new jobs in November. This news got the "boys" all lathered up, and talking about a rate hike again. That rate hike talk in Australia had been pretty quiet lately, but this news got them talking again.

The Aussie dollar (A$) gained on the labor news against the dollar, but really took the New Zealand dollar / kiwi to the woodshed after the Reserve Bank of New Zealand (RBNZ) left rates unchanged, and RBNZ Gov. Bollard had some dovish comments in his press conference afterward.

Bollard had this to say about New Zealand's economy. "The pace of economic growth appears to have moderated. Corporate investment intentions are now below average. Household spending also remains weak, with household credit still flat and housing market activity slowing further. House prices may decline a little further in the near term. This continued household and business caution suggests current low interest rates are having a less stimulatory effect than in the past."

He then tried to balance his comments by saying, "on the positive side, activity in New Zealand's trading partners continues to expand. Growth in the Asia-Pacific region remains strong." Unfortunately, the markets focused on his dovish comments, and kiwi got whacked!

In Canada... the markets were surprised by a strong Housing Starts figure of +14.6% in November... and that news woke up the traders that had been sleeping on the Canadian dollar / loonie! I had a Canadian resident, and Pfennig reader, send me a note about his country and the loonie... He wasn't buying my enthusiasm for the loonie, if Oil prices continued to go higher... Hmmm... I will admit that it's true that the Canadian Gov't doesn't like it when the loonie gets to parity and beyond... All we have to is go back to the period of March 2007 to end of year 2007... The loonie rose to $1.10... and hasn't seen that lofty figure since... The Gov't went about cutting interest rates to reduce the attractiveness of the loonie... But... and here's where the cheese begins to bind... Oil prices were only $80, having risen from $60.... It is my contention that if Oil prices would have gone on their rise to $140, when the loonie was $1.10, they would have offset the Canadian Gov't rate cuts... Just as I believe it will do this time, with Oil prices rising once again.

Well... the IMF's managing director, Dominique Strauss-Kahn, told an audience that "the survival of the euro is not in doubt, and the currency will still be around in five years." He went on to say that "Europe needs a coordinated policy, and we have not reached that level yet."

I'm not a big fan of the IMF... and it bothers me a bit that the IMF managing director felt he had to make that statement... For, in doing so, he gave credence to the knuckleheads calling for a collapse of the euro. Oh well, at least he said something that made sense!

Tomorrow for us, tonight in China, China's trade balance will print... Expect a Trade Surplus, of course... but you might want to get ready for a staggering number that may exceed $21 Billion in November, which... would equal the monthly figures that China posted before September 2008 (the financial meltdown)... That's the rumour coming out of China this morning... And hear me now, and listen to me later on this... The U.S. lawmakers will have a cow over the size of the report, and remember they have a bill on hand to apply tariffs on Chinese exports... I'm sure we'll hear all about how China is to blame for our imbalance problems, and how tariffs will correct those imbalances...

I shake my head in disgust... for tariffs won't do what the lawmakers think they will do... I know I went through this when the tariff bill was first introduced... but all we have to do is go back in history, and stop at the Great Depression... There are many economists and analysts (& me) that believe the Smoot-Hawley tariffs were what spun the U.S. economy and the world for that matter into the Great Depression... So... we have lawmakers that probably don't even know about Smoot-Hawley, and that... my friends is the reason we seem to do stuff over and over again, because we never learn from the past!

You know... before I go to the Big Finish... the rising yields around the world, with the U.S. Treasuries finally joining in, I think will not be good for a strong yen... In fact, I'm not really a fan of yen at this moment in time... As long as the flight to safety was in vogue, yen was well bid, but if there's a shift to traders looking more to yield differentials, yen is a loser, because their yields are zero, and aren't going anywhere!

Then there was this... Looks like was wrong about something I said earlier this week, and that was about the unemployment benefits extension... I was under the thought that it was to extend the benefits past the 99ers (those that had been unemployed for 99 weeks)... But that's not the case... According to a story on Yahoo... the deal that took unemployment benefits from 26 weeks to 99 weeks in some states is what will be extended. so. things for the 99ers don't look good now, as their benefits begin to run out soon. I just wanted to get that out there, because my beautiful bride says that I don't admit when I'm wrong.

To recap. the dollar rally remained in place yesterday, with only a brief pull-back in the Asian session, which was then reversed in the European Session, and the euro hangs on by a thread to the 1.32 handle. Gold and Silver once again were the big losers VS the dollar yesterday. U.S. Treasury yields continued to rise yesterday, and are now higher than those in Germany for the first time in a month of Sundays! Australian job creation continued for an 8th consecutive month in November, and Canadian Housing Starts surprised the markets on the upside.

Currencies today 12/9/10: American Style: A$ .9845, kiwi .7475, C$ .9890, euro 1.3215, sterling 1.5765, Swiss $1.0220, . European Style: rand 6.9140, krone 6.0220, SEK 6.9075, forint 210, zloty 3.0510, koruna 18.97, RUB 31, yen 84, sing 1.3125, HKD 7.7690, INR 45.22, China 6.6550, pesos 12.41, BRL 1.69, dollar index 80.25, Oil $88.40, 10-year 3.23%, Silver $28.46, and Gold. $1,384.05

That's it for today. Did you hear about the woman in California that finally returned a book to the library 74 years after taking it out? I saw that, and it cracked me up! The accumulated fines were $3,000. The library didn't charge the fines. Well. I just glanced at the calendar, and see that my winter vacation begins next Friday! YAHOO! Alex lost a tight wrestling match last night. Darling daughter Dawn, husband Jerry, Delaney Grace and the Ever-baby, Everett were there to watch. All the young girls sitting around us, had goo-goo eyes on Everett. he slept through the whole thing, which reminds me of me! I could sleep anywhere any time! I waited all day for news on our April Showers who had surgery yesterday, and not a peep. maybe today. and with that. I thank you for reading the Pfennig, and I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 12-09-2010 12:35 PM by Chuck Butler