A strong bond market surged upwards last week. It was the kind of move that gives investors ulcers. Have rates peaked? Are the moves for real? Have I missed the market? Should I buy now before it is really too late? These are questions being agonized over.
But this lastest move seems to be largely technical and not a change in fundamentals.
As has been the case in all the rallies during the past year, bond dealers have little secondary-market inventory (bonds that dealers own and sell to customers, as opposed to new issues sold through syndicates).
So far in 1979, the new-issue calendar has been light, and it looks as if the Treasury will be able to do its first-quarter financing with ease. Therefore, there is little supply to trouble the markets at this point.
Finally there is a tremendous amount of institutional money just waiting to be invested in the stock and bond markets. That crucial ingredient istiming -- where an investor tries to buy bonds when yields are at their lowest prices, and, of course, to sell when prices have risen to their zeniths.
This makes for very nervous and uncertain markets that react to every rumor on Wall Street, and to whatever comes out of Washington or to any other important situation throughout the world that somehow could affect our economy in particular and those of our trading partners in general.
New municipal issues came and went at prices which two weeks ago would have attracted no takers. Corporate issues that started to sell slowly last week cleaned up. And the two-year Treasury note sold at an average return of 9.85 percent, down from a 9.99 percent a month ago.
New York City even managed to sell $125 million one-year notes and is talking of bringing another sizable issue in February.
Those who feel that rates have peaked or who are not sure should commit some funds to the markets.
In case you are wondering, I am not convinced that rates have peaked but, as I have said before, that's what makes markets.
The calendars are light this week. The Treasury will announce its quarterly refunding on Wednesday. (TABLE) (COLUMN)Week of 1/26(COLUMN)Week of 1/19 6 Mos. U.S. Treasury Bill (coupon eq. yield)(COLUMN)9.94%(COLUMN)10.15% 1 Yrl U.S. Treasury Bill (coupon eq. yield)(COLUMN)10.16%(COLUMN)10.45% 2 Yr. U.S. Treasury Note(COLUMN)9.66%(COLUMN)9.88% 9 Yr. U.D. Treasury Note 8% 8/15/86(COLUMN)8.96%(COLUMN)9.17% 30 Yr. U.S. Treasury Bond 8 3/4% 11/15/08(COLUMN)8.83%(COLUMN)8.95% New AA Long Public Utility Bonds(COLUMN)9.42%(COLUMN)9.55% Bond Buyer 20 Bond Index(COLUMN)6.30%(COLUMN)6.48% 30 Day Muni. Suppy+Blue List Volume(COLUMN)$1.46 billion(COLUMN)1.70 billion 30 Day Corp. Bond Calendar(COLUMN)$1.19 billion(COLUMN)1.21 billion(END TABLE)