Bonds Take A Spill
By Arthur B. Hill - Fri 08-Feb-08 9:06 AM EST
The U.S. Treasury regularly holds bond auctions where banks submit bids and foreign banks are part of this bidding process. The so-called "indirect" bid measures the appetite of foreign banks and yesterday's indirect bid was a mere 11% of the auction. The indirect bid has averaged 27.2% the last six auctions and yesterday's sharp decline shows hesitancy among foreign banks. Perhaps it is just a one-off, perhaps not.
Whatever the case, the bond market did not like it one bit and declined sharply. The iShares 20+ Year Bond ETF (TLT) declined over 2% and yesterday's loss was the biggest since April 2004. Despite this decline, the overall trend for TLT remains up and there is a lot of support in the low 90s. It would take a break below 90 to reverse this uptrend. The second chart shows the 10-Year Note Yield ($TNX) with a flag breakout. TNX gapped up in late January, consolidated with a flag and then broke out. The next resistance area is around 4-4.3% (40-43 on the chart).
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