Ben Bangs Bonds Out of Range

Bruce Krasting's picture
The long end of the bond market has been stuck in a range for almost two
months. I think it may have broken out of the range today. The closing
price on the bond contract today was 118.99. The low set back on 12/14
was 119.05.

It didn’t take much for the contract to stumble to this foul smelling
level. The last 50bp came thanks to Bernanke. At one PM the minutes of
his speech came out. Essentially Ben commits himself to continuing QE. We take another step down in bond land. Maybe an important one.

The day chart:

Knee jerk reactions and hourly market trends don’t mean much in the
scheme of things. What consequence Ben had today will be lost in the
noise a few days from now. That said, it's interesting to watch the
market’s reaction. When Ben said, “We’re going to continue with the QE” bonds traded cheaper.

Ben’s not going to quit. QE2 will run its full course. Long bond yields
are going up as a result. It must kill Ben to see how the market now
trades him and his policies. Ben is an academic, no market experience to
speak of. Maybe he his clueless how the boys in the futures pits are
pricing him these days. If so, he should ask his partner in QE crime,
Brian Sack. He runs the NY Fed desk and does understand market sentiment. Brian would tell Ben the markets are fading him. And making money in the process.

I lived through this once before when William Miller was running the
Fed. The markets beat this poor guy to death. He couldn’t say a word
with out stocks, bonds or the dollar falling out of bed. I was one of
many who would just short things ahead of any of his scheduled comments.
Ducks in a barrel.

Miller came in March of 1978. He was out by August the following year. The markets crushed him. They did him in.