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How the Bond Markets React
A New Weekly Fixed Income Feature at the BlueCollarDollar
11.03.04
I Can See Clearly

Not really but you can't help but wonder how the fixed income market would react if it could. More and more, the bond traders are looking for clarity in everything from Presidential politics to the international movements of the Chinese interest rates to the release of the employment numbers due to this Friday for October.

Reasons for the increase in prices are many. Picking one as the sole reason that the yield is heading towards 4.00% again is extremely difficult with the GDP coming lower than consensus which was interestingly offset by the continued enthusiasm of consumers to spend and do so in a big way.

The Chinese are moving one step closer to a market economy which is another way of allowing markets to provide the incentives and rewards without government intervention. This will prompt the revaluation of thier currency.

Oil prices have not eased significantly either and this is adversly affecting consumer sentiment. As long as people feel poorer than they did four years ago, the economy will hang in the balance giving traders something else to concern themselves with in the coming weeks.

Reports have noted that inventories have dropped but that is a knee-jerk reaction to the frighteningly high level of imports. Currently, we are bringing almost $600 billion more in the way of goods and services that we produce. Funding for this gap spending is coming from borrowed funds, creating an even blurrier picture of a healthy economy.

As I write this update, election results are trickling in but do not expect the election to have as large an impact on the fixed income markets as the outcome will have on the stock market. But never underestimate the effects of a poor jobs number. Consensus still has job growth at 200,000, which would be a substantial increase over September's disappointing number. Unfortunately, I am not seeing the incentive for job growth and do not expect the number to be much better that the previous month.