U.S. Treasuries
Not much change this week. The bond market is cautious.
<= 1 year treasuries are called T-bills, which are sold at a discount from par (face) value. 1 to 10 year treasuries are called notes (payment every 6 months), and 20-30 year treasuries are called bonds.
Say you want to buy a 2-year $1000 note. The way you read the price (from some sources like Bloomberg) is: it would cost $990 plus an additional 28.5/32 of a percent of $1000. (The + is 1/64%.) From sources like CNBC, you get a decimal: the price of a 2-year note is 99.8828. The price of a 5-year note is 99.9063.
Price and yield are inversely related. When the Fed buys, price goes up and yield goes down. In essence, we are seeing a flattening of the yield curve as the Fed replaces short-term treasuries with longer-term ones as part of a program. In trading, there were more short positions on the 10-year note.
Some Federal Reserve officials oppose the Fed buying mortgage-bond securities because of the risk of inflation.
When the price of oil increases, growth slows (since consumers have to spend more on gas) and there would be more investment in the bond market. From the chart above on the left, the bond market is strong.
The 3rd round of quantitative easing is still on the table.
Europe
There are actually indicies for bank deposits. The charts above are yearly, ending December 2011 (last available data). Greece is on the left and Germany is on the right. Corporate and individual deposits have gone down; who would want to keep their money in countries at risk of default?
The losses are much less in Italy and Spain than in Greece. There was a year-end uptick in those charts as people cashed in assets for the holidays. Italian banks are selling bonds to stem the outflow of money. Central banks in Spain and Portugal are penalizing banks for aggressively pursuing money by paying high interest (because money that stays in the bank doesn't help the economy). Additionally, Asian companies are buying Italian and Spanish debt, since the return is six times as much as in Asia.
The Bond Market
I was curious about the size of the bond market, and it is many times bigger than the equities market, but we see it less in the news. The data above is from FINRA. The majority of the U.S. bond market debt is in U.S. treasuries at just over a quarter, followed by mortgage-backed bonds, corporate bonds, etc. (Note that there is actually more in treasuries than FINRA accounts for.) Although we mostly talk about U.S. treasuries, there are many instruments in the bond market.
Did you know? In the market for credit default swaps, which is essentially insurance for debt obligations, the cost to insure 10M of Greek debt for 5 years is $7.2M plus $100,000 annually.
Some corporate news: companies have issued/refinanced debt because of better yields that make it cheaper for them to borrow.
I seem to like macro more than micro.
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