The T-Bond–WorldCom Connection
What did WorldCom
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implosion of
T-bonds
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corporate bonds, the highest amount ever for an American company. The auction
was well received as bond investors snapped up the relatively higher-yielding WorldCom
paper. But to buy WCOM’s bonds, the money had to come from somewhere and
portions of Treasury portfolios were liquidated to buy the commercial
paper.Â
But WorldCom was not the only factor sending June T-bonds
down 1 4/32 to 101 1/32. Traders also liquidated bonds in order to participate
in the rally — and expected follow through — in European Treasury instruments.
The European Central Bank took the world by surprise, unexpectedly cutting
interest rates by 25 basis points. (From a Bloomberg survey, 37 of 38 economists
got it wrong, forecasting that the ECB would leave rates unchanged). The
move substantially alters perceptions and mandates institutional asset
reallocation, but importantly shows that the ECB is in loosening mode, auguring
for more upside in continental debt instruments. Here again, US debt assets were
sold to finance European bond purchases in hopes of participating in the rally.
Stock index futures ended mixed with the blue chip index
futures closing positive for the first time this week. Strong same-store retail
numbers and a downtick in initiation jobless claims furthered the view that the
economy is improving. The ECB’s rate cut also helped by improving the odds for
worldwide economic recovery.
S&P futures
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Dow futures
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Although they started higher,
Nasdaq 100 futures
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revenue miss in its 11 years as a publically traded company announced Tuesday
night. The NDM1 fell 33.50 to 1842.50.
Euro FX futures
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Swiss francs
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Still, Tony pointed out that in their policy statement the ECB did not specify they had come off inflation watch. A clear statement about inflation would have better eliminated the widely held view that today’s seemingly behind-the-curve and reactionary move dampens the ECB’s credibility.
British pounds
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followed the ECB and cut their equivalent benchmark short-term rate. Action in
the pounds provided an opportunity to get long the BPs in a move to the contract’s
Turtle Soup Plus One Buy
trigger (the prior 20-day low). BPs rallied .0048 off the trigger and closed up
.0018 at 1.4218.
June dollar index futures
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last night by registering on the
New 10-Day Highs List — gained .30 to 116.52.
A high estimate from the US Department of Agriculture for
the corn crop led to a gap-down opening and move to a contract low in the July
contract
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In the softs, Momentum-5
List leader July sugar
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bullish flag and made a gain of .06 to 9.06. Also from the Momentum-5
List, coffee
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two-month high, but managed a gain of .65 to 68.55.