Whipsaw movements in rates continued this week without any Treasury auctions, while the Fed bought bonds on all 5 days.

The better than average ADP Employment Figure on Wednesday got the market juiced for Nonfarm Payrolls and the Unemployment Rate on Friday. The 297,000 ADP Employment change on Wednesday moved some analyst to call for 500,000+ gains in Nonfarm Payrolls, and moved the ten-year from 3.3% to 3.45% immediately after the data was released, only to have NFP come in at 103,000, below even the pre-ADP estimates, which moved the ten-year back to where it started.

Bernanke’s testimony to the Senate Budget Committee on Friday was pretty uneventful. The FOMC stands committed to completing QE2 in full and keeping rates floored. The market will avoid anything above .75% on the two-year until we get a real indication of change from the Fed.

Shed Spread

It’s been a while since I’ve written about the Shed Spread. For those who are new to the blog or just need a refresher, check out the link below for my first Shed Spread post from last June.

http://www.acrinv.com/20100625331/blog/fixed-income-weekly

While our Fed is pedal to the medal with loose money, The Peoples Bank of China began to raise rates in October. Year-on-year CPI in China crested over 4% in October for the first time since 2008, and then printed 5.1% for November, which prompted a second rate hike in three months.

In a normal environment Shibor will follow government controlled lending rates, but when the rise in credit sensitive rates outpace that of risk free government rates I see it as a sign of heightened fear and worsening liquidity.

The Shed Spread’s previous high was 170 during the height of the credit crunch in November 2008. It spiked to 190 on December 28, and currently sits at 166. Are things in China really worse now than they were in 2008?

I’m no expert on the Chinese economy. I created this measurement and gave it a funny name without doing any real testing to confirm what the data might actually be saying, or if it is saying anything at all. It’s just an observation of mine. If anyone reading has any insight or questions please share them with me.

Have a great weekend.