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January 30, 2009 |
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The sovereign bond markets of Europe, the UK, and now the United States have been stuffed with supply. The goose simply can’t take it anymore. Yesterday, U.K. Gilts fell after an auction drew the least demand on record. Meanwhile, it didn’t help that the US Treasury came to market with more large tranches of supply, with no end in sight. Let me repeat: no end in sight.
The best performing currency yesterday was gold. Which climbed back above the 900.00 level (futures). There is no longer a problem with liquidity in global markets. Behavior in gold, silver, and commodity equities have been telegraphing a cessation to dry conditions for 6 weeks now.
The next source of capital for global markets will come from sovereign bonds. (The refuge of frightened money over the past six months). When this capital starts looking to exit, the recipient asset classes will surge. Oil looks to be struggling still with actual, real world industrial demand. And yet it’s hard to see gold going higher on a reflation thesis without pulling oil along for the ride.
Global sovereign bonds are just another asset competing for capital. But the world’s governments have been stuffing the channel with supply, to take advantage of the fear. I hope someone can make fois gras out of the situation, when it turns ugly.
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