Tainted Alpha

FT.com Alphaville: Bloodbath of the bonds

A sharp rise in US Treasury yields — the 10-year increased 21 basis points and the 30-year 21bps — dampened investor euphoria, leading the S&P to close just 0.05 per cent up on the day. Jitters in the bond world seem to be emanating from the decision to extend the US tax cuts and its impact on the States’ public finances.

Macro Man: Bad day for Goldfinger, but worse for Mr Bond

Well, TMM were happy with yesterday’s Gold move, but they are sure they are not alone in cringing at the car crash that has occurred in the Treasury & FX markets overnight as Tens smashed through 3% and then proceeded to trade as low as 3.25% on the London open. Cue a barrage of excitable emails, Bloomberg messages and IBs from all corners of the market, intellectualising about how the Treasury move shows that the market is now worried about the sustainability of the US debt load, or that equities cannot rally with yields moving higher, or that QE2 has failed, or that mortgage convexity selling is about to send yields to 3.5% etc etc… Usually, TMM’s “signal” for when things have gotten a bit overdone is when emails on rather complex subjects start to come from single stock equity guys or the FX market… we’ll merely refer you to our Armchair Generals piece.

Econbrowser: The Correlation between Money Base Growth and Inflation

I’ve been reading through undergraduate textbooks, trying to figure out where the idea that money base expansion must necessarily manifest itself in higher inflation. In Stephen Williamson’s macro textbook, he argues that fears of inflation are motivated by the view that eventually, money base expansion will feed into money expansion (box on pp. 432), despite the fact that there is no obvious contemporaneous correlation between the two variables.

Calculated Risk: Tax Negotiations: No help for 99ers

Just to be clear, the “extension of the unemployment benefits” is an extension of the qualifying dates for the various tiers of benefits, and not additional weeks of benefits. There is no additional help for the so-called “99ers”.

Calculated Risk: Mortgage Rates rise sharply

[I]t’s been a complete bloodbath in the market for us. … Three rate sheets for the worse, an average 4.75% 1.0 point loan today, well up from the October lows of 3.750%. Crushing to say the least.

The New York Times: For Obama, Tax Deal Is a Back-Door Stimulus Plan

Mr. Obama effectively traded tax cuts for the affluent, which Republicans were demanding, for a second stimulus bill that seemed improbable a few weeks ago. Mr. Obama yielded to Republicans on extending the high-end Bush tax cuts and on cutting the estate tax below its scheduled level. In exchange, Republicans agreed to extend unemployment benefits, cut payroll taxes and business taxes, and extend a grab bag of tax credits for college tuition and other items.