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Morning Notes For October 13th 2010 at Trader’s Narrative

Morning Notes For October 13th 2010

The following is a guest post by a buy-side analyst working in a US asset management firm. The author’s comments are in italics. I welcome your feedback in the comments:

  • Members of the Federal Open Market Committee (FOMC) stated at the September 2010 meeting that additional “accommodation may be appropriate before long,” though the decision will depend on the future economic situation. The meeting minutes revealed that debate over the method of additional stimulus centered on the purchase of Treasurys and possible steps to affect inflation expectations. There are high expectations that the committee will announce an additional round of stimulus at their November meeting. – Roubini Global Economics
  • After 68 days in a dark, hot purgatory 2,000 feet underground, the first of 33 trapped miners prepared to be hoisted to freedom late Tuesday night in a rescue that was expected to mark the beginning of the end of a drama that has mesmerized people worldwide. – Washington Post
  • Warren Buffet, who last month called himself “a huge bull” on the US, said the euro faces ‘a real challenge’ after Currency’s Rally. This is a test, and I would say the test has not been passed. I’d rather watch it from afar than nearby. There’s a real challenge when you try to get a large group of countries with different cultures, different attitudes toward fiscal policy, to share a common currency. I think it’s going to be an interesting one to watch.” – Bloomberg

Euro vs. US Dollar
euro dollar Oct 2010
Since early June, the Euro has rallied nearly 17% against the dollar. Most of that during September as the outlook for more Quantitative Easing from the Fed became more likely.

  • Treasury 10- to 30-Year Yields Spread at Record Treasury 30-year bonds reached a record yield premium over 10-year notes amid speculation the Federal Reserve will buy medium-term debt as it tries to keep borrowing costs down. The longest maturities, those most sensitive to inflation, also lagged behind shorter-term notes after the Fed said it’s prepared to ease monetary policy “before long” to keep costs in the econo¬my from falling. – Bloomberg

Yield Curve – 10 year treasury yields minus 2 year yields
yield curve 10 2 Oct 2010
Yield Curve – 30 year treasury yields minus 10 year yields
yield curve 30 10 Oct 2010
The long end of the curve (30’s minus 10’s) has steepened while 10’s minus 2’s has flattened. This could be signaling a lot of things, one of them being longer term inflation expectations are on the rise…perhaps in response to the thinking that additional Quantitative Easing ultimately increases the risk of higher inflation down the road.

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