Friday, March 20, 2009

US Announcement on Purchase of Treasuries...

This is only an illusion.

Bond price had dropped to a stable price before last night yet the bid/cover ratio has shown sufficient interest from the bidders. In other words, market has not given up on UST yet.

Meanwhile, 2 weeks ago the 5-year and 10-year AAA banking and finance rate had shot up high to 6.x and 7.x percent respectively, considering the spreads from a 0.25% target rate, it has touched the recent 4-month high ever since Lehman Brothers' incident.

Therefore, in the last 2 weeks capital are running tight on banks.

The current support has already shown before last night's announcement. Nevertheless, the announcement took place AFTER the result announcement of Citibank, AIG, and others. The intention is questionable.

In case of manipulation, integrated with the previous sales of options by Citi's senior executives, government announcement may tend to "boost" the market for "bad asset selling" or "bad asset holding/refinancing" purposes.

In case of no manipulation, it can be a simple coincedence. Thus, the effect will soon be "decoupled".

No matter what cases, it is probable that US stock market will lose the rising momentum when the pumped money, mostly in 3-month/6-month term, reached maturity.

As the money was injected to the banking system instead of the market directly, inflation will not appear now. Hence, gold may not really surge as UST has returned as a risk shelter for the moment.

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