Free Money Buoys Bonds
Imagine that you can borrow money nearly for free (for
1%) and then invest it in government Treasuries for a “risk-free” 6%
return. That’s exactly what many large institutions are doing in what is known
as the “carry trade.” In this trade, institutions sell yen, then buy
dollars and purchase bonds.Â
Short-term interest rates were dropped last week to .15%
in Japan, and as Tony Crescenzi points out in his commentary
today, two-year notes yield a low .18%. Hence, this action has been, in part,
responsible for recent weakness in the yen and price persistency in
T-bonds
(
USH1 |
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PowerRating). T-bonds rallied as many as 17/32 before pulling back
and closing 6/32 higher at 105 20/32.Â
The Japanese yen
(
JYH1 |
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PowerRating) gapped up from
contract lows, but still finished weakly, up just .0005 at .8363. The yen is on
the Implosion-5 List.Â
Tech futures slumped after Yahoo!
(
YHOO |
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PowerRating) gapped to a 32-month low, falling as
much as 20% to 16 1/4 after saying it would miss earnings expectations and find
a replacement for its CEO.Â
The
Nasdaq 100 futures
(
NDH1 |
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PowerRating) closed 39.50 lower at 1949.00. Traders
rotated into blue chips futures with
Dow futures
(
DJH1 |
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News |
PowerRating) adding 93.0 10,848.0. S&P futures
(
SPH1 |
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News |
PowerRating)
closed 1.00 higher at 1266.20.
Soybean oil
(
BOK1 |
Quote |
Chart |
News |
PowerRating) got going early, spouting
up in the first 10 minutes of trading to a new three-month high. Bean oil has
been diverging from the grains and is now the second leading contract on the Momentum-5
List. This contract made good on an Off The Blocks
trade, rallying strongly from the get go. Similar to its daily bar chart,
the intraday chart then broke out of a bullish flag pattern to close .3200 higher at
16.3900.Â
Â
Coffee
(
KCK1 |
Quote |
Chart |
News |
PowerRating) registered a Turtle Soup Plus
One Sell signal two days ago and yesterday, on the day of the signal, the
contract rallied to a new one-month high, but then sold off and closed near its
lows. This morning, the contract made good on the signal (in a Turtle Soup Plus
Two!), falling back to a low of 65.25. The contract rallied off the
consolidation band in the 65 area and maintains the early signs of a bull given
the last two days of one-month highs that filled the Jan. 30 gap. Coffee
closed down 1.25 at 66.65.
