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A Bubble Of Trouble

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Thursday's action in the Treasuries market left some investors fearing the worst; that the bubble may have started to burst.

U.S. Treasuries plunged on Thursday, despite a host of events that normally would be bullish for bonds, including falling stocks, the Fed buying Treasuries and data hinting the U.S. recession may be far from over.

The plunge likely stems from government plans to sell a massive amount of new debt next week; creating worries whether global investors can digest all the pending supply. When all is said and done the Treasury is expected to issue about $2 trillion of debt in fiscal 2009.

Benchmark 10-year Treasury notes <US10YT=RR> were trading 28/32 lower in price for a yield of 3.30 percent, marking the highest yield in nearly two weeks, from 3.20 percent late on Wednesday.

Benchmark yields, which move inversely to prices, have risen about a full percentage point since early January.

"There is going to be a huge amount of supply to feed the deficit -- that is what is going on here," says David Dietze, chief investment strategist at Point View Financial Services

Meanwhile, bond investors were also worried that the US could lose it's AAA credit rating after Standard & Poor's cut its credit outlook on the United Kingdom to negative from stable. "People are asking, if the UK is having problems like this then maybe U.S. sovereign debt is also not as solid," adds Dietze.

What’s the trade?

I believe this is a sell America moment, says Steve Cortes of Veracruz on Fast Money. In an era of devaluation I like long resources with the XLE and shorting the consumer.

And that leads to our Charles Schwab Question of the day.


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Trader disclosure: On May 21st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (APC) Call Spread; Najarian Owns (BX) Calls; Najarian Owns (INTC) Calls; Najarian Owns (ISIS); Najarian Owns (MOS) Call Spread; Najarian OWns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Call Spread; Najarian Owns (BP) Call Spread; Terranova Owns (GENZ), (ABI), (JOYG), (XBI), (TER); Terranova Owns Oil Futures; Terranova Owns Nat Gas Futures; Terranova Owns (DIS) Calls; (XOM) Calls; Terranova Owns June Gold Futures; Grasso Owns (NYX), (XLF), (RIMM), (V); Grassso's Clients Owns (PETM); Grasso's Firm Owns (WMT); Grasso's Client Owns (SUN); Grasso Owns (NYX); Seymour Owns (AAPL), (BBT), (BX), (EEM), (FLR), (TTM), (INFY), (MGM), (PBR); Seymour is Short (FCX), (POT)

Stuart Frankel Clients Own (JPM), (MA), (V)

For Steve Cortes:

SHORT THE SPDR KBW BANK ETF (KBE)

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