In October, stocks had their best monthly rally since 1987. The S&P 500 index (SPY) around 12 percent. And as stocks gained, bonds sunk. Is the bull run in U.S. Treasuries over?
Banks holding Greek debt conceded a 50% cut for Greek debt being held by private investors. Bond investors were forgiving with Greece, but will that be that way with other debt saddled countries that want a break?
Panic was caused by the proposed referendum in Greece because polls show that the terms reached with the EU and IMF are highly unpopular with Greek citizens. Even though they have gotten an incredibly good deal, the average Greek is focused on the additional years of austerity that would be required on Greece’s part.
Apparently, neither the Greeks, nor the markets like hearing that there is no free lunch.
Meanwhile, the European Financial Stability Facility (EFSF) – Europe’s main weapon against toxic debt contagion – was strengthened. According to some reports, EFSF could provide guarantees up to $1.4 trillion for bonds in troubled eurozone countries.
All of these events have significance to the U.S. Treasury market, no matter how far removed they may seem.
History, a Few Months Ago
In the face of the U.S. debt ceiling crisis and a downgrade in the U.S. government’s credit rating in August, the Treasury market (IEF) was destined to collapse.