I� have been getting a lot of mail lately from stock market investors who wonder if it’s time to short bonds rather than own them, and a session like today provides a good explanation as to why that does not seem like a good idea to me at this time. At all.
To be sure, a lot of the demand is coming from people who are concerned about equities and are seeking safety, but the point is that investors are convinced that the Fed will launch another large-scale bond-buying program this year, providing a massive bid under the market. This is very good news for a government that wishes to borrow at historically low interest rates to fund a $1 trillion budget deficit — but it’s also good for bond holders.
The amount of bids for the two-year note auction was 3.78 times the amount on offer, the second highest bid-to-cover record, far surpassing the 3.12 at the last two-year auction and the average of 3.21 for the prior four auctions. Foreign investors were clearly a big part of the action, amounting to around 39%, vs. 29% at the last sale and 34.95% average, according to the Wall Street Journal.
One big bidder you might not have thought about is the Japanese government. When it says it plans to intervene in currency markets to try to push down the value of the yen, what it actually has to do is buy dollars — which are then funneled into Treasuries.
“With the Japanese intervening in their currency markets and both the Bank of England and Federal Reserve closer to easing further than tightening, the bond bid is back in strong form,” Dan Greenhaus, strategist at Miller Tabak, told the Journal.
The bottom line is that the Fed, Europeans and Japanese have all said they plan to buy Treasuries. And people want to short them? Good luck with that. Perhaps you’d also like to stroll through the lion’s cage at the zoo at feeding time.
For more ideas like this every day, check out Markman’s two daily advisories: Trader’s Advantage for short-term traders and Strategic Advantage for long-term investors with a tactical bent.
Top 5 Stocks for the 4th Quarter Surge. Louis Navellier details five stocks set to deliver record earnings this October and jump 30%-50% in the next 90 days as the big money piles in. Get their names online here, including Louis� buy-below and target prices.
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