Bond Buyers Cautious
Research for Online Investors

by John Dalt

11/07/11

Eurozone bond prices are climbing this morning.  Italian 10-years crossed 6.66%...a bad sign and the highest since 1997.  Prime Minister Berlusconi is under fire with rumors flying he will resign.  Leaders of his PDL party are urging him to resign or face crumbling support from his center-right coalition.  The Italian parliament is scheduled to vote on public finances Tuesday.  If he cannot carry this vote, elections are likely to be called.

French President Nicolas Sarkozy announced austerity measures to protect France’s AAA credit rating.  He wants the government to raise the retirement age, raise taxes and cancel inflation adjustments for welfare benefits.  Prime Minister Francois Fillon said the country had run deficits for 30 years; it was time to bring the budget in balance.

The European Central Bank (ECB) disclosed this morning they had resumed bond purchases last week with 9 billion euro worth of purchases.  They did not disclose which country’s bonds were targeted, but it does not appear to have stopped the spike in Italian interest rates.

Some G20 country’s leaders floated the idea of eurozone countries “pooling borrowing rights” from the International Monetary Fund (IMF).  Germany denied this morning they would pledge the countries gold on deposit with the IMF for bailout money.  Economy Minister Phillipp Roesler said “German gold reserves must remain untouchable.”

The European Financial Stability Fund (EFSF) had to cancel a three billion euro sale last week because of the turbulence in markets around the Greek referendum proposal.  The EFSF auctioned three billion in ten year bonds this morning.  They sold at a 3.59% yield.  Market observers were surprised at the weakness in demand.

Interest rates came in almost one-percent higher than the last time similar bonds were sold.  The sale did not attract enough bidders and lead managing banks had to make up the difference to buy all bonds offered.  The EFSF’s inaugural five-year auction in January, attracted 44.5 billion euros in orders from 500 buyers.  Demand has declined through the year.  June’s auction only attracted 7 billion for five-years from seventy accounts and eight billion euros of orders from 100 accounts for ten-year bonds.

Italy plans on selling five billion euros of one-year notes on Thursday.  The headline risk just seems like it won’t go away.  The market feels like it wants to move higher on strong earnings in the U.S. and good economic numbers that indicate a slow recovery is underway.

The week is young, but we are looking for the market to shrug off the eurozone worries and move higher this week.

Abraham Lincoln’s seven “Cannot’s”

You cannot help the poor by destroying the rich.
You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot lift the wage earner up by pulling the wage payer down.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away people's initiative and independence.
You cannot help people permanently by doing for them, what they could and should do for themselves.

Thanks to Long-Term subscriber D.J. for sending these in.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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