The Return Of The Bond Vigilantes?

There was a short story earlier in the week on Yahoo! that mentioned the bond auctions earlier in the week did not go over well with the buying professionals. It seems things did not go better on Thursdays auction.

The FT has a story and it seems, regardless of Helicopter Ben’s announcement, that higher rates may indeed be on the way.

For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent.

That is a huge jump in rates in one week. That sort of move makes people wonder what’s going on in the market.

“The environment for debt auctions has turned negative,” says Rick Klingman, managing director at BNP Paribas. “Long-term rates are rising and it is no coincidence that this has occurred after the passage of healthcare reform and the end of Fed buy-backs.”

It does seem fairly coincidental that the health care bill passes and then for the first time in almost a year the Treasury auctions do not do well. And if they continue to not do well, then we really will see higher rates. I see there’s some more auctions coming up this week, so we should have more of an idea of how the market is behaving.

One never knows about the market. This could have been a one week hangover due to the health care vote. But, if we see continued weakness for Treasuries and a piling into the TIPS then we can safely say that inflation is here, regardless of what the Fed says.

Pssst… Wanna Buy Some Detroit Junk?

Get this, the city of Detroit is trying to sell some bonds. I know, who isn’t. But here’s the kicker.

The city, which warned investors in its preliminary official statement of the possibility of filing for Chapter 9 bankruptcy protection, provided a June 30, 2008, financial statement, its most recent, to investors. A fiscal 2009 report is expected to be complete by May 31, said city spokesman

Because as we all know, nothing big has happened in the Detroit area in the past couple of years, right?

You’ve got to have your head on backwards to participate in this. I mean, this is madness. The city’s on the brink of bankruptcy and people are buying the bonds with no financials. Risk management anyone? I guess no one’s learned anything from the past couple of years.