Six Factors Boosting Treasuries

There are a number of factors boosting Treasuries this morning.

1. Nothing gets the bond market going like bad news from the housing sector. The latest installment of bad news was delivered today by both Toll Brothers (TOL - commentary - Cramer's Take) and Beazer Homes (BZH - commentary - Cramer's Take). Given that shares in both companies have held up, the news doesn't go much beyond what is already priced in, so I do not see the news as a catalyst for a lasting rally.

As an aside, it is also interesting that the credit-default swap for Toll's bonds are unchanged, meaning that the insurance premium that investors pay to guard against default on Toll's bonds has not been bid up.

2. Japanese investors have been prominent buyers since the summer, and reports are that they are taking advantage of the most recent fall in Treasury prices to add to their holdings. As the world's largest holder of Treasuries, Japan's influence is substantial. It is notable that Japan stopped buying Treasuries when the Fed started raising interest rates in June 2004, and remained a net seller until this summer when Japan started buying again after the Fed stopped raising interest rates.

3. Last week was the worst week for the bond market in about one-and-a-half years, and it is recovering a bit from the drubbing.

4. There are reports of so-called black-box trading, wherein programmed buyers have been buying futures, likely a reflection of the oversold condition from Friday and the lack of follow-through selling.

5. Rate-lock sellers are covering their short positions placed previously as hedges against bond issuance.

6. A mild factor likely relates to election uncertainties, which raises risk premium on riskier assets, deflecting money to the Treasury market.

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Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

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