02/16/10 St. Louis, Missouri – Remember last week, when I told you about the 10-year Treasury auction results? I told you that the yield had to be driven higher by 7 BPS to attract investors… Well, that’s cotton candy compared to the news from the 30-year Treasury auction!
Let me put this as simply as possible… “Indirect buyers” are the foreign central banks, and they normally take down 40% of a Treasury Issue… Well, last week, they only took down 28% of the issue… Uh-Oh! But then, there were the “direct buyers” upping their participation in the auction to a record level of 24%!
Now, most of the market participants don’t have a clue what these numbers are telling us… But, as Pfennig readers you will now know… The “direct buyers” are “unknown”… Yes, there is no way to tell who makes up the “direct buyers”… For all we know, the Fed took down the entire amount! Why, you may ask is this a problem? Well… We almost had a “failed auction” here in the US. And if not for the “unknown buyers” it would have failed!
To speak of a US Treasury auction and say that it failed would almost be akin to the day the earth stood still! Then… We would see yields soar and the dollar get deep-sixed… So, until that day happens, every auction should become quite interesting, as long as the US continues to drive up deficit spending, and keep rates at ultra low levels.
So… What did the currencies do yesterday with the US closed for Washington’s Birthday? (His actual birthday is the 22nd) Well, not much… The beleaguered euro (EUR), traded in a tight range around 1.36. The Aussie dollar (AUD) tried on a couple of occasions to rise over the 89-cent level, and the Canadian dollar/loonie (CAD) remains well bid over 95-cents.
In the overnight markets, the bias to return to risk began slowly, and built steam as the cold and dark of the night went on for us here. German Investor Confidence, as measured by the think tank, ZEW, fell for a 5th consecutive month in February. This makes sense to me, given the threat of a double-dip for the economy, and all the Greek bashing… However, the Confidence Index fell less than forecast!
So… For the record (and for those of you keeping score at home), the Confidence Index fell from 47.2 to 45.1 (but was expected to fall to 41!)
There was no word overnight regarding a bailout of some sort for Greece… Nothing but strong words, like a parent gives to a child about spending too much money! The other Eurozone states don’t like the idea of supporting Greece.
You know, if we could go back to the archives of when Greece was added to the euro, I believe that I said jokingly something about how “they let anybody join the euro these days”… Little did I know that years later Greece would be the Thailand of the Asian Crisis…
The return of the risk bias overnight has really lit a fire under the commodity/higher yielding currencies… Aussie and New Zealand dollars (NZD) have shot up past 89 and 70-cents respectively… The Brazilian real (BRL) is looking better this morning, and gold is up $12 this morning. So… For now, things are as they should be, considering the fundamentals.
Now… If the markets were really paying attention… Today’s report on the TIC’s Data would be important, as it will report on the net foreign securities purchases in December.
And later today, we’ll see the color of the latest FOMC meeting minutes. I don’t know how many times the Fed has to repeat itself that they are going to keep rates at current levels for some time, before the markets believe them…
Speaking of that… I got a call from a reporter at The Wall Street Journal yesterday, asking me some questions about the carry trade… I said that one of the reasons the dollar has been rallying is a reversal of the carry trade that used the dollar as the funding currency, because the holders don’t believe the Fed when they said that about rates staying low… They fear aggressive rate hikes by the Fed.
Then there was this… Did you see that lobby spending in DC, (I thought they were going to get thrown out of DC) hit a record level in 2009 of $3.5 billion? Hey! Is Washington for sale? Yes, we’ve had lobbyists for years, but the previous high was $2 billion… Sure looks to me as though the heat is on to sell, eh?
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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