The Economy and Bond Market Radar (December 4, 2011)
Long-term Treasury yields ended the week higher as coordinated global central bank action helped alleviate immediate fears of a liquidity crisis in European banks.
The chart below depicts the 10-year Italian Government Bond yield which hit new highs last week but rallied sharply on this weekâs central bank intervention. This was a ârisk offâ week with relatively risky assets rallying.
Strengths
- Coordinated action by global central banks lessens the odds of another financial crisis.
- Economic data in the U.S. remained relatively strong as the economy created 120,000 jobs in November, consumer confidence jumped, manufacturing indicators improved and auto sales were generally better than expected.
- International data was mixed, but Japanese industrial production rose 2.4 percent in October, well ahead of expectations.
Weaknesses
- The negative aspect of the central bank action this week was on rumors a European bank was on the cusp of a liquidity crisis and the central bankers were forced to act to avert a crisis.
- S&P downgraded many large global banking institutions.
- Chinaâs purchasing managers index (PMI) fell into negative territory for the first time since 2009.
Opportunities
- The European Central Bank (ECB) indicated a willingness to provide additional support if European leaders agree to a fiscal union.
Threats
- The situation in Europe remains extremely fluid and negative news is almost expected at this point, unfortunately it is politically driven and difficult to predict outcomes and ramifications.
