布南克說話,大莊家開牌

利率市場鬧了整整一個星期, 布南克講話為大家開牌

這篇Morgan Stanley滿有趣值得一讀

圖貼的次序不對,卻不知怎麼安排才對

All focus is - and should be - on Bernanke as he testifies before the House Budget Committee today. Why is today so critical? I will get to that shortly.

Clearly a lot of attention has been paid to the long end of the US Treasury market. Unfortunately, the market has been watching too much CNBC, and is about to miss out on the real action. The Fed never set out to target long end Treasury yields. The 10-year yield level of 3.25% was a figment of the market's collective imagination. The Fed simply wanted to lower mortgage rates in order to spur refinancing - and the jury is still out on whether they succeeded (my scoreboard has the Fed down at half-time).

Instead of worrying (or rejoicing) that 10-year yields may reach 4.00%, the market is forgetting about the cliff on which the short-end stands. Exhibit 1 plots a rate I have been watching very closely since December 2008. The 1-year forward 1-year Treasury yield has been flirting with 1.5% since that time. Just look at how well-behaved this key indicator of Fed policy expectations has been during the past five months.

Exhibit 1: U.S. Treasury Curve Implied 1-Year Forward 1-Year Yield



Today could be the day this forward rate breaks out - to the upside - to higher yields, and then we will see what real chaos looks like in the Treasury market. What is the most overcrowded (for good reasons) position in the Treasury market? Long the front-end at the expense of the back-end. Nothing says this better than Exhibit 2 and a bit of common sense.

Exhibit 2: Morgan Stanley Non-Commercial (Speculative) Futures Risk Index

I am not making a prediction, or a "call". The unhinging of the front-end would be a hammer-blow to the "green shoots" contingent, the ending of the (in the eyes of some) nascent economic recovery. I hope and pray Bernanke is dovish today. In many ways, the mere possibility of a front-end pummeling increases the reward/risk of a flattening position (see MS UST: Enter 3s/7s Flattener Ahead of Auction; June 3, 2009). If Bernanke is dovish, the curve should bull-flatten. If the Bernanke is hawkish, the curve should bear-flatten...