Forex Investment and Currency Trading

The Treasury’s announcement that it was abandoning its plans to purchase troubled assets, leaving available funds to the new administration, hurt risk appetite. In addition, the Treasury’s wind down of the Supplementary Financing Program (SFP) lowered expectations for issuance. These developments combined with dismal economic data to push Treasuries to yields not seen in data going back over half a century.
With the SFP winding down and TARP outlays winding down until the new administration is in place, the supply of bills may shrink by year-end, possibly richening bills even further from their current absurdly rich levels. However, longer out the [...]

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The Treasury curve steepened last week as long end issuance met some resistance but economic weakness kept a bid for the front end of the curve. A 9bp tail at last week’s $10bn 30-year reopening may signal that the market is having trouble digesting long end issuance. However, the Treasury appears to be winding down its Special Financing Program, which will enable it to issue bills to finance TARP outlays.
October’s record budget deficit of $237.2bn was larger than the budget deficit in all of FY 2007. With the Fed running out of room to ease, pressure is mounting for even [...]

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Treasuries rallied on the week as the unemployment rate rose to the highest since 1994, vehicle sales fell to their lowest level since 1983 and the ISM Manufacturing Index fell to the lowest since 1982. Still, October’s job loss of 240k was less than September’s 284k, suggesting that the speed of economic decline could soon slow.
The Treasury’s refunding announcement included reintroduction of monthly 3-year issuance, monthly issuance of 10-years and quarterly issuance of 30-years. Still, the tremendous financing need of the TARP may need to be met from the Special Financing Program (SFP), whose proceeds have been held in cash [...]

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Last week saw an improvement in equity markets, which halted the Treasury rally. The 5-year sold off amid new supply, but the new issue’s underperformance may have more to do with repo market disruptions and the issue remains attractive on an outright basis.
Last week’s GDP report gave further evidence that the economy is in recession and this week’s payrolls report looks to be the weakest of the cycle, as it is the first report to follow the intensification of the credit crunch in mid-September. However, this week’s quarterly refunding announcement is likely to remind the market of the upcoming wave [...]

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