Tuesday, April 25, 2006


Bond Auction Weakness On Economic Data

Some bond market news. "Treasury debt prices extended their fall on Tuesday after a lackluster reception for an auction of 5-year Treasury Inflation-Protected-Securities dealt another blow to a market already reeling from strong economic data. Stronger-than-expected readings on consumer confidence and existing home sales had already prompted investors to raise bets that the Federal Reserve may push interest rates higher than currently thought."

"The market extended its losses after the TIPS auction met with tepid demand, traders said. 'The auction is lending some more weakness to the general tone of our market that started with the housing number this morning and this is not helping,' said Rick Klingman, head trader on the U.S. Treasury desk with ABN AMRO."

"Interest from indirect bidders, understood to include foreign central banks, was about 26 percent, down from an average of about 39 percent in the two 5-year TIPS auctions of 2005."

"The benchmark 10-year Treasury note was heading for its biggest daily rise in yield since July 2005. Bond yields and prices move inversely. Ten-year notes traded 22/32 lower in price for a yield of 5.08 percent versus 4.99 percent late on Monday."

"Five-year notes were down 12/32 in price to yield 4.99 percent, compared with 4.90 percent on Monday. Two-year notes were 4/32 lower in price for a yield of 4.96 percent from 4.89 percent late on Monday. The 30-year bond was down 1-8/32 for a yield of 5.15 percent from 5.06 percent."

And precious metals. "Silver futures closed almost 7% higher Tuesday as the first U.S. silver exchanged-traded fund appeared to move closer to launch. Gold prices rose more than $10 an ounce."

"Silver for May delivery rose 78.5 cents, or 6.7%, to close at $12.56 an ounce after reaching a high of $12.65. The contract lost 9.2% of its value on Monday as traders locked in some of the recent gains that pushed futures prices to a 23-year high last week. Prices also dropped almost 14% on Thursday."

"According to a regulatory filing Monday, Barclays Capital Inc. on April 21 deposited with the custodian of a planned silver exchange-traded fund 1.5 million ounces of silver to back 150,000 shares with each representing 10 ounces of silver. Indeed, 'it is another indication of imminent blessing,' said Jon Nadler, at bullion dealers Kitco.com."

"But (newsletter editor) Ned Schmidt argued that 'this deposit suggests that purchases of silver may not be necessary when the silver ETF begins trading.' 'This news, obviously not kept secret, was the likely reason for silver selling off last week,' he said."

"July platinum finished up $11.80 at $1,144.50 an ounce after reaching an all-time futures high of $1,144.80 earlier. June palladium rose $6.30 to close at $368.25 an ounce."

"Gold strengthened Tuesday as the dollar hit a fresh seven-month low against the euro. In New York trading, the dollar strengthened 0.1% to 114.84 yen. The euro rose as high as $1.2439 before slipping back to $1.2408, up 0.3%. The British pound was up 0.1% to $1.7867. The dollar was off 0.05% at 1.2684 Swiss francs. The euro rose 0.4% to 142.52 yen."

"The housing market is seen as a key element in the Fed's thinking on how far it should raise interest rates to stave off inflation. 'I suspect that the members of the Fed will be as confused about what is going on in the housing market as I am,' said (economist) Joel Naroff. 'The FOMC members probably would like to pause. But the data right now are not giving them much cover."

'this deposit suggests that purchases of silver may not be necessary when the silver ETF begins trading.'

150,000 shares worth? Drop in the bucket for an ETF. Sheesh... some people will say anything to ding metals.

Realistically, though, it could be the price runup (beyond that of Gold) was due to them acquiring that 1.5M oz starting position.

I still wonder why they didn't go with 1oz/shares instead of 10oz/shares. Maybe that was an unspoken condition of approving the ETF?
The market seems to be saying it already, but isn't it time for those making a market in TIPS to actually come out and say it: The inflation numbers we're getting, based upon CPI, are just plain silly?

All those investors who banked on TIPS did so because they (rightly) suspected inflation was looming. Their miscalculation was the belief that the official measurements of inflation are real metrics and not mere political fabrications.

Fool me once shame on you. Fool me twice shame on me.
besides gold, silver and maybe even palladium(hey, if you can get it in coin form it's a currency to me) what are the favorite currencies here?
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