Inverse Treasury ETF Option Volume Explodes….2012 Deficit at $974 Billion….and more!

Best of the Bond Market for August 10th, 2012

ETF Trends: Traders are loading up on inverse bond ETF call options in anticipation of higher rates - “Yesterday we saw literally an explosion of call buyers in leveraged inverse product ProShares UltraShort 20+ Year Treasury Bond (NYSEArca: TBT) as more than 100,000 call options exchanged hands,” Paul Weisbruch at Street One Financial said in a note Friday.

Reuters: US budget gap so far this year: $974 Billion.  - The $69.6 billion deficit in July was less than the $103.0 billion budget shortfall expected by analysts in a Reuters poll.  The drop in spending partly reflected $35 billion in recurring benefit payments made on July 1, a Sunday, that were accelerated into June, Treasury said.

Bond Buyer Video: Muni market week in review and preview of next week

Quantifiable EdgesTen year bond rates hit a new 50-day high on Thursday in conjunction with the 50-day high in the SPX - the intermediate-term implications suggest possible difficulty for stocks.

Learn Bonds: Large speculators are starting to get long US Treasury bonds for the first time in months.  - The fact that large speculators are now getting long the market is not a good sign for the bond market bulls.  Since they have been wrong for the last year, the fact that they are now getting long the market should be seen as a negative in my mind at least.

St. Louis Fed: Covered bonds may be coming to America.  Here’s what you need to know.  - On May 18, 2012, the Securities and Exchange Commission effectively announced that it would allow the Royal Bank of Canada to register and publicly sell covered bonds in the U.S. market.

Sacramento Bee: In a quick audit last week CA’s Finance Department found $268.5 million of accounting errors.  - $143 million of surplus money found in a beverage container recycling fund and a children’s health account was discovered before the budget process ended in June.

Reuters: Muni bond funds see highest weekly inflows in 5 months.

Businessweek: It turns out that Goldman’s fixed income desk is not the only one to discover the internet recently – Morgan Stanley joins Goldman Sachs Group Inc. (GS) and UBS AG (UBSN) in starting automated systems to exchange bonds in an effort to maintain their grip on transaction fees.

WSJ: Investors are starting to chase yield in one of the riskiest parts of the muni market. – While less protection is a pill many investors are eagerly swallowing, some are raising alarm bells and staying away from hospital bonds. This debt has long been considered risky when compared with other municipal bonds, but now the debt is even riskier, they say.

Howard Edelstein: The liquidity on odd lot retail corporate bond trading systems is actually pretty good – Ironically, electronic odd-lot markets are thriving despite a substantial reduction in the liquidity provided by bank-owned dealers since the 2008 financial crisis – the very type of concern that has prompted talk of an industry-wide initiative.


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