Archive for the ‘deflation’ Category

Notes From Underground: Bad data from Philly and the jobless claims surge to more than 500,000

August 19, 2010

The news on the economic front is tepid at best, which has given rise to the long end of the treasury market. As the BOND and NOTE futures continue to rally, the airwaves are full of talk about a bubble in the fixed income market. We don’t think a BUBBLE is forming, but what is happening is that many HEDGE funds overstayed their welcome on the 2/10 steepener. The steepener trade was a great trade as the FED pushed rates down on the front end to help aid the Banks in their profitability in a very uncertain credit market. (This was the same policy that the FED used back in the early nineties when the FED eased the pain of theĀ banks, and Savings & Loan crisis. It created a very steep curve.) The FED did it again beginning in 2007 as the current DEBT crisis unfolded and the BOND VIGILANTES pushed the 2/10 curve out to more than 280 basis points, which provided banks with an easy profit center to help shore up its balance sheets. Of course bank profits came out of the pockets of anyone who had savings in short-term money instruments.

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