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How the Bond Markets React You never hear about the outsourcing of jobs to China. The reason is simple. It has never been identified as such but when the exports of country outpace its material imports - and that's not raw materials either - the jobs that produce those goods are essentially a value over their counterpart in the US. But does China does have an import fixation that unfortunately has begun to wane.
The reaction in Treasuries, as the fixed income market begins to absorb the news, will not be pleasant. The Bush administration has, for the most part played against itself. This quarter, we will have offered over $147 billion in new debt offerings. That is another record and goes to pay for spending that is already in the pipeline.
The presence of good exchange rates are important to our credit offerings. Those are beginning to show signs of wear as the dollar begins a predictable slide that could be quickly identified as a fall. Should the value of the dollar diminish considerably, this would make those inexpensive, high yield notes not as attractive. Some have said that 4.50% is an acceptable level for the Ten-year Treasury in this economy. I'm not so sure it will stop there.
Bond traders are worried about the current jobs number but not for the reasons you might suppose. Although they find faults with the just released numbers - more a result of the temporary construction in the storm devastated south and the overall "still behind the projected need" revisions - their real concern is the Fed reaction. This was supposed to be a number that would predict an end to tightening and a softening of language from the esteemed bankers. Instead they fear the worst. A continued rise in rates for the near future is almost a given now as well as a change, albeit subtle, in the language coming out of this week's meeting.
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