Wednesday, July 8, 2009

Flight to Quality Gives Opportunity?

The 10-year Auction today was a super success as foreign banks flocked to the security of US Treasuries. Demand was very strong and the yield came in at 3.365%, much lower than the 4% level the market was trading at only a couple of weeks ago. Rates plummeted across the board and the 30-year Treasury fell below 4.2%. It had recently been trading as high as 5% several weeks ago.

With rates backing down on the 30-year note, the Ultra Short 20+ Treasury ETF has fallen about 20% from the highs. While the flight to quality is in play again as the economy continues to be in a horrid shape, down the road, we expect interest rates to be much higher. With hundreds of billions more of debt coming into the market, eventually, reality will set in. Also, should the government again consider providing another bail-out package, financed with even more debt, interest rates will surely soar.

No comments:

Post a Comment