Market Commentary

As noted yesterday 10 and 30 year treasury yields are up
March 30, 2010

As noted yesterday 10 and 30 year treasury yields are up about 0.25% since the passage of the health care bill.  While I will readily admit there are a number of factors for this increase—including economic growth stronger than expected, the unwinding of the fear trade, perhaps quiet brinkmanship over trade disputes—last week’s 2- 5- and 7- year treasury auctions all went poorly. 

Maybe the only concrete observation one could make about last week’s treasury auction was the “indirect bidders,” which consist mostly of foreign banks but also include large domestic and foreign domiciled institutions took less than their usual percentage.  As per Bloomberg indirect bidders was about 10% less than average.

Only history will state if we are/were indeed around an inflection point and the reasons for such a transition, however the simple fact of the matter last week foreign institutions purchased fewer Treasuries at a time Treasury is issuing an unprecedented amount of debt. 

It is my experience crises are spawned by little noticed events.   For example the seemingly insignificant devaluation of the Thai Baht ushered in the Long Term Capital Management (LTCM) fiasco 12-13 years ago.  Few thought the return of mark to market accounting in July 2008 will help facilitate the worst financial crisis in over 70 years. [Note:  I think the cessation of mark to market in March 2009 was a major step in ending last year’s crisis]

Was last week’s treasury auction one of these events?  I place the odds of such a scenario as less than 10% however I cannot underscore the importance that Washington must rein in spending.  

Waxing philosophically I reiterate my long held view American society/culture is fundamentally one of individual responsibility. That the individual not government makes and is subsequently held responsible for all decisions. 

This core non political belief will either be strengthened or weakened in November.

Commenting briefly yesterday’s market action, equities rose moderately as further signs of an economic recovery sparked demand for higher yielding assets.  The 10-year rose to the highest yield since June.

What will occur today?  Consumer confidence and CaseShiller Home Index are released.

Last night the foreign markets were up. London was up 0.02%, Paris up 0.14% and Frankfurt up 0.15%.  Japan was up 1.01% and Hang Sang up 0.65%.

The Dow should open nominally higher on economic optimism. The 10-year is up 2/32 to yield 3.85%.