The Econ­omy and Bond Mar­ket Radar (Feb­ru­ary 13, 2012)

Trea­sury bond yields were mod­estly higher this week as most of the yield curve shifted higher by 4–5 basis points. Greek bailout dis­cus­sions dragged on all week with­out really com­ing to a clear res­o­lu­tion, which added to the market’s volatil­ity this week.

Eco­nomic data was gen­er­ally benign but we con­tinue to see a pos­i­tive trend in employ­ment indi­ca­tors as the weekly ini­tial job­less claim series con­tin­ues to trend lower, which his­tor­i­cally has been a pos­i­tive indi­ca­tor for the economy.

Strengths

• Ini­tial job­less claims con­tinue to trend in the right direc­tion indi­cat­ing the econ­omy con­tin­ues to improve.
• The Bank of Eng­land (BOE) will inject another $80 bil­lion of liq­uid­ity as it expands its quan­ti­ta­tive eas­ing program.
• Con­sumer credit grew by more than $19 bil­lion in Decem­ber and by more than $20 bil­lion in Novem­ber. This may indi­cate con­sumers are more con­fi­dent in their future and are will­ing to take on more debt.

Weak­nesses

• In Decem­ber, Ger­man indus­trial pro­duc­tion fell 2.9 per­cent and Ger­man exports fell 4.3 per­cent. The euro­zone was obvi­ously weak in the fourth quarter.
• Chi­nese infla­tion rose to 4.5 per­cent in Jan­u­ary, which threat­ens the imple­men­ta­tion of eco­nomic boost­ing gov­ern­ment policy.
• Japan’s core machin­ery orders fell 7.1 per­cent in December.

Oppor­tu­ni­ties

• The “risk on” trade started to show a few cracks this week and a rever­sal of sen­ti­ment would be good for bonds.

Threats

• With lots of eco­nomic data out next week and a trend toward stronger eco­nomic data, bond prices could be threat­ened if this pat­tern continues.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

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