Replies to post #17997 on Market Sense and Sentiment (MKTSS)

[RCKS]

rr
I think everyone is a little spooked by yesterday, when the 10yr and equities both sold off together, I know it spooks me, vbg. But then maybe I'm too easily spooked.

How is that for over using the term spooked?

rr
What is your take on treasuries?

[OldAIMGuy]

Hi Rich, Re: Short Treasury vs Stock Dividend.............

Here's something that I look at relative to "risk." If we assume the 13 week Treasury is essentially risk free, then we can compare its yield to that of stocks' median dividends to get a feel for the relative risk of being "in" or "out" of the stock market.



This shows relatively recent history. I have data going back to the early '80s. The graph is generated by subtracting Value Line's Median Dividend from the 13 Week Treasury Rate of the same week. A high positive number (above 3.35) would be "bearish" for stocks and "bullish" for short treasuries (maybe long treasuries, too).

Going the other direction, if the short treasury rate is pathetic as it is right now and Value Line's median dividend is still reasonably attractive (+2.6%p.a.) it would favor owning stocks instead of short treasuries.

The 10th Percentile of my database since the mid '90s shows up at -0.9 (green line) while the 90th Percentile is 3.35 (red line). I am sure that for various maturities of Treasuries one could establish similar types of charts. Right now this graph is favoring Stocks over short Treasuries. Back in '07 it was warning that stock dividends were weak compared to owning short Treasuries.

Hope this helps,
Tom

[alexed]

Strong 7-year note auction lifts Treasury prices

By SARA LEPRO – 4 hours ago

NEW YORK (AP) — Long-term borrowing rates fell back on Thursday as investors returned in numbers to pick up newly issued Treasury notes.
The 10-year Treasury note — a widely used benchmark for home mortgages and other kinds of consumer loans — gained nearly a point, sending its yield back down to 3.62 percent from 3.75 percent the day before.
Investors had sold off bonds on Wednesday, pushing long-term yields to their highest level in six months, on worries that the flood of U.S. government debt hitting the market this year would overwhelm demand.
Those concerns abated on Thursday after the Treasury
Department saw solid demand at an auction of $26 billion in seven-year notes, the third and final auction this week in which the government sold a total of $101 billion of debt.
There were more than twice as many bids as there were notes available, although the ratio was slightly weaker than in recent auctions. Also, the Treasury was forced to raise the yield by nearly 0.03 percentage points to entice buyers.
Stock investors have been taking their cues from movements in the Treasury market, and sent shares higher Thursday on relief that bond prices were recovering. Along with increasing borrowing costs for the government, rising yields on Treasury debt could delay a recovery in the battered housing market by increasing borrowing costs for homeowners. Banks have also been benefiting from a surge in mortgage refinancing, which could be compromised if rates remain high.
Josh Stiles, managing director of IDEAGlobal.com, said investors returned to the Treasury market on relief that the auctions are over and that it will be some time before new supply is pushed into the system.
"With the auctions over, there is a sense of relief and a desire to see the markets recover," Stiles said.
Treasury prices tumbled this week on concerns about the massive amounts of debt the government is selling to help fund its economic stimulus and financial recovery efforts. The Federal Reserve has undertaken a massive program of purchasing U.S. Treasurys and other kinds of debt in an effort to keep borrowing rates low.
The benchmark 10-year Treasury note rose 30/32 to 95 28/32, pushing the yield down to 3.62 percent from 3.75 percent. The 30-year bond rose 2 21/32 to 96 1/32, sending its yield down to 4.49 percent from 4.65 percent.
The two-year note inched up 1/32 to 99 26/32. Its yield slipped to 0.98 percent from 0.99 percent.
The yield on the three-month Treasury bill fell to 0.13 percent from 0.15 percent. Its discount rate stood at 0.14 percent.
Investors were little phased after Moody's Investors Service on Wednesday affirmed the U.S. government's top-shelf "Aaa" rating. Investors had sent Treasurys lower last week on concerns that the U.S.'s rating could be in jeopardy after Standard & Poor's, another ratings agency, warned it might downgrade the U.K.'s rating.
The cost of borrowing between banks held steady after a modest increase on Wednesday. The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — was unchanged at 0.67 percent.
The rate, which is still near record lows, had been falling consistently for most of the past month on hopes that the worst of the recession was over.
Copyright © 2009 The Associated Press. All rights reserved.


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