The Rumor Mill

A Mill is actually a unit operation designed to break solid material into smaller pieces. Rumor Factory is the more accurate construct for what markets are dealing with. In a factory laborers manufacture goods and oversee the processing of one product into another. The hazard of high capacity utilization rates at the Capital Market Rumor Factory is a topic for another time. The point here is merely that business is good and "employees" are working double shifts.

After weeks of milling, the German's passed their vote today and Greek and Irish bonds have rallied. The Greek 2 year is down 152bp to a still "un-zirpy" 68.25%. The Italians placed some 3 year paper at 4.68% and BTPs at 5.86%, both higher than previous auctions. The 10 year is 368 over the Bund and the Italians will need to roll 90Bln Eur more in Q4. Gear up the machinery.

The US market bent a nice concession (taxpayer ripoff) into the 5 year auction and has rallied nicely into the 7 year and upcoming Twist this morning. In a shocking development, virtually NO day over day change took place in the complex. The 2 year yield was up 1.1bp and the 10 was up .9. The relationship between the two closed at 173.2. New data and Fed chatter should get the machinery humming today. One configuration we are watching (we are not technicians so excuse the pedestrian nature) is the 5 year Treasury future. The product has not settled below the 10 week moving average since June 27. (that was reversed the next week ) The note would need to be above 122.25+ to correct the present weakness.

Coffee break's over. Back on the line.

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