Market Analysis

There are 2 very interesting online articles today that relate to bonds.  The headlines are, as usual, overly sensational.  However it gives insight into what the Chinese are thinking.  What the Chinese think is important because they are the largest holder of US government debt, owing 6% of $10.9 trillion of outstanding US Treasury debt.   The first article's headline is "China worried about safety of US debt."   The second article's headline is "Treasurys fret about stock rally - and China, too."  Below are links to the articles:

http://money.cnn.com/2009/03/13/news/international/china_stimulus.reut/index.htm?postversion=2009031307

http://money.cnn.com/2009/03/13/markets/bondcenter/credit_market/index.htm?postversion=2009031309

Investors who have flocked to Treasury notes have done so for 2 major reasons.  First, they would rather earn a small amount in Treasury notes than lose money in the stock market.  Second, they believe if the Treasury "bubble" pops (many analysts think the current price of Treasury notes represents a bubble - higher Treasury prices translate into lower rates) that the Federal Reserve will begin printing more money and will become a buyer of Treasury notes.  The theory is that the Federal Reserve could prop up Treasury prices through this action by buying Treasurys at a price that is higher than the market would otherwise pay.  The only flaw with this theory is that if the Fed action were to devalue the dollar, which may analysts predict it would do that would mean that foreign holder of US debt (with China being the primary holder) would experience currency translation losses on their holdings even if prices here in the US for Treasury bonds remain stable.

For those who are sitting on the sidelines waiting for rates to move lower prior to deciding to refinance, this is becoming an increasingly risky position.  While it is possible with very dismal news, rates could inch lower, there is a very real possibility that we have seen the bottom for this cycle which may also represent the lowest rates of our generation.