O Em Gee! Last Friday was quite amusing! By day, treasury yields pushed into the red (that sounds rather boring, actually) and by night, the vampires and werewolves of the Twilight saga “New Moon” sank their teeth deep into the already lean allowance of too many ingenuous, unsuspecting teenagers across America. In the battle of parents paying the government to keep their cash safe and their kids turning around to spend their cash to see half-naked bodies of Edward and Jake, it is safe to say Hollywood won.
But let’s talk about a loser here, for a change. The real loser ever since March this year has been the trading volume in equities. If you pull up any chart for a broad market index or ETF (^DJI, SPY etc), it’s hard to miss that trading volume has steadily declined, except in October when we saw a small relative rise. This meant not so great trading conditions for short-term traders who look to score big during times of high volume, which translates into high volatility and liquidity. Barring a few names, the October earning season did little to bring stocks into spotlight for volatile trading. When real volume dries up, algorithmic trading or computer programs take control. Many traders prefer to stay clear of these conditions because risk to reward scenarios are not very clear and attractive. To hit home the idea of just how inactive the market is, let me make a confession: I am writing this at work, and it’s not even lunch time.
It seems 2009 is as good as over. Investors are very risk-averse. Especially institutions that caught the rally and are now sitting in profits do not want to risk ending the year with losing trades. So they are sitting tight on the sidelines or stepping away from equities and into safer havens like Treasurys and corporate bonds. Obviously, you want to end the year with a bang, not with a whimper.
And this is where the earlier note about negative yields comes into play. When price goes up, yields come down. It so happens that people right now are so eager to buy short-term treasurys, called treasury bills, that by way of high demand, their price went up significantly enough to push their yields into the negative. On Friday, the yields registered a -.03%. Effectively, this means investors were willing to pay the government .03% interest to keep their cash safe. Tell me this isn’t amusing!
To me, this is so amusing I believe it beats vampire movies hands down. Unless, of course, the director pays me .03% of his ticket sales to change my mind.
