T-Bond trading comment (August 21, 2007)

Liquidity was a bit more present today but nothing to get too excited. We entered the market this morning with some wild rumours that the Fed was going to cut rates today... This was coming from Europe and was apparently started by Goldman Sachs. The Fed was supposed to announce a cut while Bernanke met with Dodd and Paulson. The big problem with this theory is that if Bernanke had cut the rates following the meeting, it would have greatly undermined the legitimacy and the independence of the Fed. As expected, the outcome of this meeting was simply to reassure the market that the Fed was well aware of the problems in the market and that it was ready to act if needed. When the speech came out, the market started to tank as equities took some altitude. But differently to other days, we did not burst through the 110-00 line... The fall was met at 110-07 with some agressive bidding and the market went up afterwards. Trend followers should have have an average day with some good and bad signals. In this context of low liquidity, the market still heavily followed the stock market.

An interesting point to take into account today, is the fact that there is some players that started to scoop up some paper at what they believe are rip-off levels. The important thing is not are they right or wrong? The important thing is that this might engender a following and force the market to that we are not yet in recession and that growth and consumption are still there (well for the moment). In short, there is no need to panic and get slaughtered like pigs.

Except for claims on Thursday, there are no economic news until the end of the week