From 2/11

This is a post which should have been made on 2/11/10:


The EU announced a German-led rescue plan (well kind of) of the Greece. Although European leaders stated that Greece would not be permitted to fail, how this would be accomplished. The statement said that EU countries "will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole." What will the EU do? A lot! The EU has a dilemma. It cannot let Greece fail yet the EU has to be careful not to anger citizens of other EU countries for using their tax money to rescue nations such as Greece which have ignored EU rules concerning sovereign debt and deficits for years. The EU did not detail rescue plans, but it is believed some kind of loan package is in the works. Past French calls for a more centralized European economic government may be renewed.

News that Europe will do something to help Greece (and, by extension, the other PIGS countries) sent the prices of U.S. treasuries lower (and equity prices higher due to a weaker dollar as investors became more comfortable with riskier non-dollar assets). Also negatively impacting treasury prices was a relatively weak 30-year government bond auction. Although indirect bidders (which include foreign central banks) were present, direct bidder interest was wanting. Mysteriously, an unnamed direct bidder appeared and purchased 24% of the deal. This is unusual and the street is suspicious of whom the bidder might be.

In spite of what some media sources reported, U.S. treasuries did not trade lower due to the belief that the global economy is improving more strongly than anticipated. It was all about the Greece rescue and fear that the U.S. could experience credit quality issues from its large debt issuance and deficits. The difference with the U.S. is that we are the world's market place and the dollar is the world's reserve currency. This is not something any other country enjoys.

This weekend is Presidents Day. I hope to have a new post out on Monday