Bonds Boiling
Debt futures are rallying for the ninth consecutive
session just one day after the Federal Reserve cut overnight interest rates
to their lowest level in 39 years. Yesterday’s cut in the federal funds
target rate to 2.5% risks sparking inflation, a phenomenon that has occurred
every time the rate has dropped below the current inflation level. With
inflation running at 2.7%, the “real” level or yield of the fed
funds rate is zero.Â
T-bonds normally tank in a scenario that portends
inflation, but a variety of factors are coalescing to take bond traders’
eyes off the inflation ball — at least for now. One reason is a shortage of
long-dated bonds to borrow in the repurchase or repo market for bonds, tightening the
supply of such securities in the wake of the 911 attacks. Second, a
huge portion of debt will be mortgage debt and will be eligible for refinancing,
prompting bigger holders of newly issued paper to match longer durations by
buying 10- and 30-year notes and bonds, strengthening the demand for
bonds. Third, Bush said fiscal spending to beef up the economy will be
structured such that it will not push longer-dated rates higher. Fourth, lower
oil prices are easing some of the worry about energy costs as a source of
inflation.Â
T-bonds
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10-year notes
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List and trading near contract highs.Â
Stock index futures got going yesterday after the
typical three-wave head fake Lewis Borsellino says is common following Fed
announcements, and are following through on yesterday’s late surge. S&P futures
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and
Dow futures
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entries after having each demonstrated upside momentum by registering on the
New 10-Day Highs List,
and are making good on the setups.
December Nasdaq 100 futures
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4.5% gain, so far, on the session.Â
November crude oil
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heating oil
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unleaded gasoline
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Petroleum Institute’s weekly report showed national inventories fell at
their fastest pace since July. The contracts gapped lower and continued down
to make good on their
Pullback
From Lows List and short setups. But the contracts have held at the 61.8%
retracements of their recent pullbacks. Crude has started making headway
into the morning gap out of an intraday ascending triangle formation.