I'm learning so please DYOR.
Falling bond yields_ Rising bond prices
. Fed rised rate in December. Yields must rise.
. USD is priced in for 3 more rate increases. Yields must rise futher more.
. US major banks are changing more costs associated with USTs transactions. The dumping of US sovereign bonds were the result of falling demand therefore Yields rised.
. There is a report from Primco that saw an inflow for bond investment. Investors will buy bonds when prices fall in a hope that Yields will rise in the future. There was a root in corporates bonds in December. It's no wonder why the GCF was spiking.
. If I am a dealer I would buy all China and India bonds because I know Yuan is going to be backed by gold and India bonds are also backed by gold, it's called gold bond and gold backed currency.
. When there's a wave of demand for bonds in BRICS countries. USTs will be in a free fall.
Have a read about 3 fresh news today.
http://mobile.reuters.com/article/ousivMolt/idUSKBN0UJ0J520160105?il=0
http://mobile.reuters.com/article/ousivMolt/idUSKBN0UJ1Y120160105?il=0
http://mobile.reuters.com/article/marketsNews/idUSL1N14P27320160105?il=0
Defaults and Credit Ratings
. Is there a default risk in Commodities sector. This could push yields to negative territory as bond prices will suddenly spike once companies won't have quality assets as collateral to roll over their debts.
At the moment the default rate is just 4% compared to previous default reading at 11%.
Banks are changing more for companies hedging contracts. Companies are facing difficulties to seek alternative funding sources to maintain their production hedges in this low price environment. The only way for them is to rise capital at the expense of shareholders.
Read more about Negative swap spreads.
TRY already rised capital twice in 2015. I am looking forward for its next report. It will either make or break.
TRY assets are not too bad and I have no ideas about their exploration but TRY must maintain their cash level for over 10 millions in each operation to maintain its operating permits. Once its cash balance is below 30 millions for its 3 operations then I will find an exist.
. In December Republicans were fighting with Democrats about the national budget deal. It was lucky enough to avoid a negative credit rating for its country. If there's another default in government fiscal policy. The quality of USTs would be negatively affected.
I believe there're more bills to be passed because the US economy is addicted with spending. They're fully relying on the USTs to service their debts.
For example the student loan is rated as junk bonds. Is it another default?
Data dependencies
CPI is a guide to inflation. Inflation is a tool to achieve stable prices. Inflation was more than doubled in November compared to its previous 2 months.
The Fed has achieved its first dual mandates (maximum employment and stable prices) from the Congress and the last one is to moderate interest rate.
The fed gradual approach is nothing to be scared of once I see the datasets are like the water tides.
. If the economy's data dependencies aren't looking good then there's no possibility of another hike in rate. The FFR is currently reading at 0.12% together with a falling yields which is dropping a little bit. Gold will break out its locked trading range.
