Wednesday, August 26, 2009

The Bond Market Speaks

John Jansen's blog at Across the Curve gives us intraday bond market readings. One of today's posts on intraday spreads seems to us to indicate big money is preparing for economic weakness.

Today he points out, which has been repeated now for some time, that "TIPS spreads continue to narrow." Early this morning we found out overseas markets had no direction across the curve except in the 30-year bond. This might be anticipation of Federal Reserve interventions, except the long end of the curve has been particularly strong lately, which indicates subdued inflation expectations.

We think all this combined is telling us inflation is not presently feared, and that can only be based on a presumption that the economic environment is going to be soft.

If you you have a lot of long equity at this point, be careful. This same perspective came to us last weekend as we summarized last week's Barrons.

Meanwhile, over at Barrons, Michael Kahn provides technical analysis in "Fear Creeps Back into Bonds" suggesting bond market readings point to risk-aversion in the market place. The stock market is rallying on the new home sales report this morning as we write. Time will tell if equity markets are aware of this risk aversion or not.

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