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10 Year Yield Plunges To 2.57% As Bond Market Goes Full Retard

Tyler Durden's picture


The surge in the 10 Year has just gone full retard. In the meantime, behind the scenes of Wall Street's rates desks there are some serious Tijuana donkey shows going on.

And here, courtesy of credit trader, is what an exponential move higher looks like. In this case, this is the 10s30s, which BofA recommended flattening last week. Coin flipping indeed.



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Mon, 08/16/2010 - 14:43 | 524360 Young
Young's picture

Is it the bond market or the equity market that's gone full retard? "And everyone knows you never go full retard"

Mon, 08/16/2010 - 14:45 | 524370 Tyler Durden
Tyler Durden's picture

The 10 Year doesn't read scripts. Scripts read the 10 Year

Mon, 08/16/2010 - 14:49 | 524380 Max Gibson
Max Gibson's picture

any follow-up thoughts on risk-bond pair since the morning post?

Mon, 08/16/2010 - 15:07 | 524446 Tyler Durden
Tyler Durden's picture

ES has to drop to 1,068 for convergence although pair appears dislocated beyond repair right now due to major liquidations at both MS (2s10s steepener) and BofA (10s30s flattener) desks.

Mon, 08/16/2010 - 17:34 | 524759 ZeroPower
ZeroPower's picture

I read BACs note a while back mentioning a great hedge for the flattener plays with some long dated swaptions or basically underweighting the long end of the curve.

But also, why would the market dislocation in USTs matter on a broad basis - one desk's fuckup is anothers black on their P&L. At least, any decent sized fund (PIMCO advocated this a few months back) would have hedged with puts on longer dated treasuries.

Mon, 08/16/2010 - 18:40 | 524866 mephisto
mephisto's picture

Great market colour, thankyou. You'd make a hell of a broker. (sorry, sorry...)

Mon, 08/16/2010 - 16:06 | 524576 hedgeless_horseman
hedgeless_horseman's picture

I doubt retards can read:

Mon, 08/16/2010 - 20:02 | 525022 TheWord
TheWord's picture

I'm Spasticus, Spasticus, Spasticus Autisticus!


Mon, 08/16/2010 - 20:17 | 525057 DoctoRx
DoctoRx's picture

Even when all the President's men are desperate to jump-start housing?

Mon, 08/16/2010 - 14:49 | 524376 redarrow
redarrow's picture

The effort put in to hold equities up is at 100000 psi. Sooner rather than later we will have the market equivalent of the Macondo well on Wall St. What next 10 year at 2%?...f'in it is already insane right now. 

Mon, 08/16/2010 - 15:14 | 524463 Caviar Emptor
Caviar Emptor's picture

Hehe. I'll say it again: 2.5% will seem rich when yields are 0.25%

Mon, 08/16/2010 - 15:24 | 524492 chrisd
chrisd's picture

I take my investment advice from Yahoo Finance: "Wall Street's down for 2010, but Some Still See Hope".

Also, Reuters: "Banks ease lending standard for first time in 4 years" (clearly they didn't get the memo about 2001-2008.

As told to me by respectable news outlets. It is time to go long on borrowed money.

Mon, 08/16/2010 - 15:29 | 524503 redarrow
redarrow's picture

Bermonkey is straining at the controls to pull the C130 up.

Mon, 08/16/2010 - 16:08 | 524580 mikla
mikla's picture



Mon, 08/16/2010 - 17:39 | 524765 Hephasteus
Hephasteus's picture

Mikla and assetman have been funny lately. It must come from using Geihtner based avatars.

Mon, 08/16/2010 - 21:57 | 525195 TwoShortPlanks
TwoShortPlanks's picture

Printing Presses in the Fed might as well be Oxygen Generators in cargo holds or jammed trim actuators in stabs.

"Global Sanity Control this is Austerity Air, I've got a visual on Capitalist Air...yeah, he's in a big huge deflationary dive and doesn't seem to be pulling-out...his T's seem to be ineffective, offering no lift whatsoever...wait a second...their pushing money out of the doors, tonnes of money...of shit, he's down...GSC, there's bits and pieces of Capitalist spread all over, , over what looks all the world to be an oil slick in the Gulf."

Tue, 08/17/2010 - 03:27 | 525485 tom a taxpayer
tom a taxpayer's picture

Pilot on loudspeaker: "Thank you for flying Hope and Change Airline. We will be landing in 30 seconds. Don't forget to remove your belongings from the overhead rack. Please watch your step when exiting."

Mon, 08/16/2010 - 15:27 | 524497 redarrow
redarrow's picture

Makes me sick just staring into that abyss. 

Mon, 08/16/2010 - 14:51 | 524386 tmosley
tmosley's picture

Only in a few instances have I seen Tyler go "Chicken Little", and this isn't one of them (the freon leak at the nuclear plant is what I am referring to here).  He's about as far from "full retard" as you can get.

Mon, 08/16/2010 - 19:09 | 524929 Johnny Bravo
Johnny Bravo's picture

And yet, tmosley and the bond markets happen to have much in common.

FWIW I'm kidding.  I've actually come to somewhat like you over time.

Mon, 08/16/2010 - 19:17 | 524945 ColonelCooper
ColonelCooper's picture

"I've actually come to somewhat like you over time."

I'm guessing he somewhat couldn't give a flying fuck.

Mon, 08/16/2010 - 19:21 | 524954 Johnny Bravo
Johnny Bravo's picture

And you're only somewhat a prostitute for truckers, as your posts yesterday would indicate.

Mon, 08/16/2010 - 14:52 | 524392 themosmitsos
themosmitsos's picture

EVERYONE knows that if you pull off full retard though, that's an academy award ;)

Mon, 08/16/2010 - 19:11 | 524930 Johnny Bravo
Johnny Bravo's picture

Gold bitchez!

(How'd I do?  Did I get the Oscar?)  LOL.

Mon, 08/16/2010 - 15:17 | 524469 Nihilarian
Nihilarian's picture

"And everyone knows you never go full retard"



Sean Penn missed that memo.

Mon, 08/16/2010 - 16:19 | 524606 Treeplanter
Treeplanter's picture

Yet Sean did so well playing himself in Ridgemont High.  His Glory Days.

Mon, 08/16/2010 - 15:34 | 524470 Nihilarian
Nihilarian's picture

<double post>

Mon, 08/16/2010 - 15:34 | 524471 Nihilarian
Nihilarian's picture

<sry, triple post>

Mon, 08/16/2010 - 14:47 | 524372 ghost
ghost's picture

best headline ever....

Mon, 08/16/2010 - 16:08 | 524584 Assetman
Assetman's picture

Oh... and the Simple Jack reference is even better!

I'm holding out... I don't just expect Full Retard... I'm waiting for Hyperactive Retard.

Mon, 08/16/2010 - 17:56 | 524797 perchprism
perchprism's picture


Hey, guys, knock it off, will ya---my sister's a retard.

Mon, 08/16/2010 - 19:11 | 524932 Johnny Bravo
Johnny Bravo's picture

What a coincidence!  So is her brother!  It must run in the family... 

Mon, 08/16/2010 - 21:15 | 525142 Fred C Dobbs
Fred C Dobbs's picture

 I work with retards. . . I love those goofy bastards.

Mon, 08/16/2010 - 17:23 | 524734 Miles Kendig
Miles Kendig's picture

Who is rolling on snorting too much of their Adderall to combat the Xanax effect.

Mon, 08/16/2010 - 14:48 | 524375 chunkylover42
chunkylover42's picture

holy short covering the bull steepener, batman.  capitulate!

fantastic pic, BTW, that's hysterical.

Mon, 08/16/2010 - 15:01 | 524431 mule65
mule65's picture


I blew snot lol.

Mon, 08/16/2010 - 14:48 | 524377 Turd Ferguson
Mon, 08/16/2010 - 14:49 | 524378 WineSorbet
WineSorbet's picture

Tyler, you really know how to make my day.

Mon, 08/16/2010 - 14:53 | 524379 Young
Young's picture

Haha, seriously - I did not see that picture when I posted - Aaawesomeness!

Mon, 08/16/2010 - 14:50 | 524381 assumptionblindness
assumptionblindness's picture

You know things are fuc'd when Tony Robbins feels compelled to make a 'Economic Warning' video.  Enjoy!

Mon, 08/16/2010 - 14:55 | 524412 Young
Young's picture

He's received a lot of shit, but right here he talks more sense than most other media figures...

Mon, 08/16/2010 - 15:00 | 524429 assumptionblindness
assumptionblindness's picture

He surprised me with his knowledge...he must read ZH!

Mon, 08/16/2010 - 15:07 | 524447 Young
Young's picture

Right on mate!

"If you think out of optimism and delusion that everything is gonna go well..."

He's done some reading/got some tutoring on the subject, and that's a fact.

Mon, 08/16/2010 - 15:14 | 524460 assumptionblindness
assumptionblindness's picture

Maybe he got some 'Tudoring' (from PTJ) on the subject.  I'd like to know his source(s)...

Mon, 08/16/2010 - 15:30 | 524498 Young
Young's picture

I actually thought about that aswell, but it doesn't fit with my avatars track record after that. He made a killing in bonds aswell as in the Nikkei - but maybe. Who else could it be? I know Jimbo Rogers was short, but he's not the type of guy to get in touch with Robbins...

Mon, 08/16/2010 - 15:39 | 524518 Pladizow
Pladizow's picture

Always thought Tony Robbins was a tool.

He proved me wrong.

Tony impressively knows whats up!

Mon, 08/16/2010 - 17:22 | 524733 JLee2027
JLee2027's picture


Mon, 08/16/2010 - 15:38 | 524516 Pladizow
Pladizow's picture


Mon, 08/16/2010 - 15:53 | 524546 Treeplanter
Treeplanter's picture

Bet Tony has a nice stash of PM.  And a list of ETF shorts he likes, etc.   Guys, is it too early to go TBT?

Mon, 08/16/2010 - 14:50 | 524382 Azannoth
Azannoth's picture

People are assuming that

1st there won't be significant inflation in the next 10 years and

2nd that the USA won't declare(officialy or inofficialy) bancrupcy in the next 10 years

Why not just buy gold ? give them(politicians and bankers) the finger and sleep well

Mon, 08/16/2010 - 14:54 | 524383 Arthur Vandelay
Arthur Vandelay's picture

dddddon't hhhhhurt mmmmme

Mon, 08/16/2010 - 14:50 | 524387 economessed
economessed's picture

Savers will NOT be rewarded for their thrift under ANY circumstances!

Mon, 08/16/2010 - 14:50 | 524388 -1Delta
-1Delta's picture


Mon, 08/16/2010 - 14:57 | 524397 Cognitive Dissonance
Cognitive Dissonance's picture

Ya kinda wonder how long everyone can continue to ignore the bond market. People are so fixated upon whether the bond market is "correct" or "incorrect" no one wants to accept that a drop this far this fast in interest rates is indicating that the bond herd, which is so much larger than the stock herd, is no longer just signaling a stomach ache but is indicating an all out hemorrhaging ulcer.

Look at the 10 year since April. That's not worry. That's a panic. A 38% drop in the interest rate in 4 months.

Mon, 08/16/2010 - 15:53 | 524549 Caviar Emptor
Caviar Emptor's picture


Mon, 08/16/2010 - 17:22 | 524732 You Cant Handle...
You Cant Handle the Truth's picture

You're out of line, Citizen. Report to the Institute of Prosperity at once. Everyone avert your eyes from that graph and its dirty, dirty lies.

Mon, 08/16/2010 - 18:41 | 524871 ElvisDog
ElvisDog's picture

Good point, CD. An interest rate drop like the one shown in that chart is almost a dislocation. It's pretty clear that the smart money is in the "return of capital" mode these days.

Mon, 08/16/2010 - 18:43 | 524877 Geoff-UK
Geoff-UK's picture


Mon, 08/16/2010 - 20:24 | 525065 DoctoRx
DoctoRx's picture

Unless something more specific a la Fannie/Freddie/Lehman/AIG etc. occur, IMVHO the 10 year has moved too far and too fast.  Cui bono from this move?  Obv it's the administration and the Fed (among lesser fry); housing can now revive for the nonce. 

If this is a buying panic for Treasuries, perhaps this is an unwarranted panic.  Using your analogy CD, when an ulcer starts bleeding significantly, symptoms are prompt.  Things are bad in the world, but what's so different from April 5, when the 10-year was at 4.0%?  4 months of hemorrhage should yield more obv symptoms a la late summer/fall 2008; at least that's just one old doctor's immediate rxn.

Mon, 08/16/2010 - 20:25 | 525066 DoctoRx
DoctoRx's picture

Unless something more specific a la Fannie/Freddie/Lehman/AIG etc. occur, IMVHO the 10 year has moved too far and too fast.  Cui bono from this move?  Obv it's the administration and the Fed (among lesser fry); housing can now revive for the nonce. 

If this is a buying panic for Treasuries, perhaps this is an unwarranted panic.  Using your analogy CD, when an ulcer starts bleeding significantly, symptoms are prompt.  Things are bad in the world, but what's so different from April 5, when the 10-year was at 4.0%?  4 months of hemorrhage should yield more obv symptoms a la late summer/fall 2008; at least that's just one old doctor's immediate rxn.

Mon, 08/16/2010 - 20:43 | 525092 Cognitive Dissonance
Cognitive Dissonance's picture

The symptoms of a deteriorating economic situation are everywhere you care to look unless you don't wish to look or you wish to see them from a biased point of view. I've counted 44 economic pieces of news over the past 58 business days and only 5 could be considered better than expected and the rest were worst. And many were worse compared to downgraded expectations.

That light at the end of the tunnel is the train. The only question is, can the Fed slow it down. It can't be stopped, only delayed.

Mon, 08/16/2010 - 14:52 | 524398 Greater Fool
Greater Fool's picture

Man, that's a lot of maturing MBS.

Mon, 08/16/2010 - 14:52 | 524401 truont
truont's picture

Speculators are attempting to front-run the FED, who basically publically invited everyone to front-run them, which accomplishes the FED's purposes, by the way.  The FED duped specs to do lower long-bond rates so the FED would not have to.  The FED is implicitly stating there is a "Bernanke Put" under the long-bond market. 

So, pile on!

As far as equities rising, that is full retard in this environment.  Long-equity specs still think there is a PPT put under the US Stock Market.  I think they will get raped all the way down...

Mon, 08/16/2010 - 18:15 | 524840 Strongbad
Strongbad's picture

I like the front-running theory.  Are you Ben Bernake?

Mon, 08/16/2010 - 14:53 | 524402 jkruffin
jkruffin's picture

Stock crash anyday now, and it is going to get ugly on Scam Street.  Anyone left in stocks, deserves what pain they get.

Mon, 08/16/2010 - 14:55 | 524406 Tarheel
Tarheel's picture

why do teh fast money traders get the market direction wrong so frequently? They are professionals and get paid for their opinion!

Mon, 08/16/2010 - 14:54 | 524407 MGA_1
MGA_1's picture

I here the roar of the deflation train coming down them tracks !

Mon, 08/16/2010 - 14:55 | 524411 TooBearish
TooBearish's picture

How the FUk does GM think they can float this massive IPO into this shite of a market?

Mon, 08/16/2010 - 14:59 | 524426 Apostate
Apostate's picture

The PPT will support the continuing growth of the glorious, powerful American economy, comrade. Have no fear.

Mon, 08/16/2010 - 16:01 | 524567 Caviar Emptor
Caviar Emptor's picture

Ask yourself: Who do you think is buying the shares?

Not mom, not pop. 

Answer: the TBTF banks are under implicit marching orders to buy, using cash borrowed at near 0%. A near risk-free trade. If "dividends" get declared (and they will), then that's the banks getting paid back.

There has to be an ultimate bag holder in every ponzi scheme: TBTF banks will pass on their shares to funds that they advise: mostly pensions and retirement accounts (state pensions are also beholden to the Fed). At that stage, mutual funds and ETFs will also buy using mom's 401K money. Once they've offloaded there's no further concern if share value plunges. 

Mon, 08/16/2010 - 17:23 | 524737 You Cant Handle...
You Cant Handle the Truth's picture

The correct question is: what entity will soon be handed GM for peanuts?

Mon, 08/16/2010 - 14:56 | 524413 Infinite QE
Infinite QE's picture

And gold is in a bubble! ROFLMAO!

Mon, 08/16/2010 - 15:57 | 524555 Treeplanter
Treeplanter's picture

True.  But so small hardly anyone can see it.  Will be eager to sell when it's the size of Manhattan.

Mon, 08/16/2010 - 14:56 | 524417 Apostate
Apostate's picture

Why so sad?

Obviously, the market is clamoring for a share of Obama, the best president in American history. God bless this country.

It has nothing to do with the Fed buying the debt. It's just a sign of an efficient market. The price is going up because everyone knows that the dollar is strong, our political system is the best ever invented, and that American prospects for growth are undeniable.

We will prevail! USA, USA, USA!

Mon, 08/16/2010 - 15:03 | 524433 Cognitive Dissonance
Cognitive Dissonance's picture

Doesn't matter. Both the NFL season and the new fall TV season are just a few weeks away.

I can't wait for the NFL lockout next year. Assuming there's still an economy to fret about next September, can you imagine what would happen if the professional gridiron is closed for 2011? How will the average American male dissipate all that inner rage and frustration if we can't view huge bodies colliding on the field in controlled mayhem and chaos?

Mon, 08/16/2010 - 15:05 | 524443 Greater Fool
Greater Fool's picture

A new season of So You Think You Can Dance?

Mon, 08/16/2010 - 15:29 | 524502 walküre
walküre's picture

I went auditioning the other day for the new smash hit reality show:

"So you think you can TRADE and make money?"

The line-ups of down and out former trade monkeys, wannabee e-trade junkies surfing on Starbucks free wifi and Japanese housewives was a few city blocks..

Oh, this was not in East Atlanta where 14,000 showed up to apply for 400 reduced income housing freebies.


Mon, 08/16/2010 - 15:34 | 524510 redarrow
redarrow's picture

dude that is hilarious

Mon, 08/16/2010 - 17:41 | 524770 Calculated_Risk
Calculated_Risk's picture

American Idolz bitchez!!!!!

Mon, 08/16/2010 - 15:19 | 524477 AEGeneral
AEGeneral's picture

There can't be a lockout. The owners have to field a team because of contractual obligations with the networks.

Go scrubs!

Mon, 08/16/2010 - 18:56 | 524904 Geoff-UK
Geoff-UK's picture

He'll be too busy hunting squirrels for his kids to eat, CD.  Won't be a problem.

Mon, 08/16/2010 - 14:57 | 524419 HedgeFun
HedgeFun's picture

The irony is, any retards knows not to buy US treasuries right now.

Mon, 08/16/2010 - 15:00 | 524420 Roy Bush
Roy Bush's picture

Yep, full retard!  You can never, ever, never, fight the Fed...but, I'm sure there are plenty here who are thinking,  "Now is the time to finally short that 20 yr. 30 year. etc.  BUY TBT!"  Please, if you are thinking this....think again!  You will lose as interest rates are going even lower as the Fed knows it has to pump or die!

Mon, 08/16/2010 - 14:59 | 524421 Miles Kendig
Miles Kendig's picture

Momo finds a home. Right on schedule

Mon, 08/16/2010 - 14:59 | 524427 oklaboy
oklaboy's picture

Money got nooo placfe to go...Who is gonna take a chance now? well I gotta go to Tijuanna ...cyaaaa

Mon, 08/16/2010 - 15:00 | 524428 carbonmutant
carbonmutant's picture

Like two seagulls fighting over a french fry...

Mon, 08/16/2010 - 15:03 | 524436 john_connor
john_connor's picture

The final bubble bloweth in all its glory.  Its funny to watch the Fed and its primary dealers kill themselves. 

Mon, 08/16/2010 - 17:51 | 524784 ozziindaus
ozziindaus's picture

The Fed has little influence over the yields. Proof. Yields dropped almost immediately after the FOMC meeting last week......before the Fed even had a chance to "goose" the bond market. Primary dealers, institutions, everyday Joe's and foreign nations have the say. NOT THE FED.

Problem is that they would like for you to think that. A little like an Emperor without clothes. 

Tue, 08/17/2010 - 08:54 | 525614 john_connor
john_connor's picture

No doubt the Fed doesn't control yields; however they do influence behaviour when they announce they are buying 2-10 year UST paper.  So everyone front runs them and they pay a higher price.  Pretty soon they will have to buy the whole curve at an astronomical price; and that is my point.

Of course they have ZERO control over the the 3 month T-bill, which they follow when setting overnight lending rates, not the other way around.


Mon, 08/16/2010 - 15:03 | 524437 InconvenientCou...
InconvenientCounterParty's picture

The headline is my all time favorite. The image behind it is inspiring.

Please advise where your servers are so I can be sure to pray in the right direction.

Mon, 08/16/2010 - 16:16 | 524602 mikla
mikla's picture



Mon, 08/16/2010 - 16:35 | 524641 nmewn
nmewn's picture

"Please advise where your servers are so I can be sure to pray in the right direction."


Mon, 08/16/2010 - 15:09 | 524451 LoneCapitalist
LoneCapitalist's picture

Can someone answer this for me? If there is so much demand for treasuries that the 10Y yeild is below 2.6%, why do we need to print?

Mon, 08/16/2010 - 15:16 | 524467 Bankster T Cubed
Bankster T Cubed's picture


Mon, 08/16/2010 - 16:44 | 524668 mikla
mikla's picture

Can someone answer this for me? If there is so much demand for treasuries that the 10Y yeild is below 2.6%, why do we need to print?

Short version:  The Fed buys the banks' toxic assets and pays the banks interest on the banks' reserves to recapitalize the banks, which the banks use to buy Treasury bonds.  This is to:

  1. Hide the fact that all the banks are insolvent (the FDIC doesn't even have the money to close insolvent banks);
  2. Avoid a failed US Treasury bond auction (which would be, "The end of the world").

Notice that "consumers", "main street", or any other business interest is NOT in that list.

Longer version:  The Fed must print because that's all it can do.  There are no more bullets.  We are at the "end-game" of the ponzi.

However, Simple Jack's hope is that all of a sudden, people will see that there is money everywhere, the stock market is high, (forget about unemployment and future liabilities), and re-invigorate the ponzi with another burst of leverage.  No, it won't work, but it has in the past.

At this point, momentum has changed (e.g., consumer attitudes), and we are no longer able to service debt (e.g., ever increasing mortgage foreclosures, and we cannot make the monthly minimum on our credit cards).  And, this is structural:  We will not see productivity boosts for decades, like we have in the past with real estate, telecom, the PC industry, etc.  There is some hope for "green energy" or "nanotechnology", but IMHO those are still decades out.  The biotech sector has mostly been a disappointment, and will continue to be so (for a lot of reasons).

The fundamental problem is that the Treasury *must* put the taxpayer on the hook for debt service for each new bond the Treasury issues, while the Fed can merely print.  However, if the Fed can get inflation going again (a really delicate issue), then Simple Jack's theory is that it will reduce the forward looking liabilities by the Treasury.  (Not true, but that's the best they can do right now.)

Summary:  The "demand" is not real.  It does not relate to Granny on a fixed income, nor private companies trying to "park" their cash.  The bond yields merely reflect how the banks are recycling free bales of fiber shoveled into their lobby nightly by the Fed.

The printing is only because (1) they can, and (2) they have nothing else they can do.

Mon, 08/16/2010 - 18:58 | 524906 ElvisDog
ElvisDog's picture

You need to be careful with your definitions. The Fed is not printing money in the sense of dollar bills or additions to the bank account of J6P. The Fed is issuing debt. In that sense, they are not printing at all. Debt issuance is a zero sum gain. For someone the debt is an asset, but there is also someone for who the debt is a liability. In this case, the assets are going to the banks, the liabilities are accumulating to the taxpayer.

Mon, 08/16/2010 - 20:02 | 525026 mikla
mikla's picture

You need to be careful with your definitions. The Fed is not printing money in the sense of dollar bills or additions to the bank account of J6P. The Fed is issuing debt. In that sense, they are not printing at all.

A fair point.

Debt issuance is a zero sum gain.

Only partially agree.  It *is* a zero sum game in the sense that Fed==>Banks==>Treasury==>Fed (no consumer nor "main street" exists in that loop).  However, what we are *really* seeing (like you mention) is a transfer of liabilities to the taxpayer (ultimately from the Banks).  Where I assert it is *not* a zero-sum game is that we are increasing system leverage:  The Fed is taking the liabilities from the banks, at par, giving dollars to the banks.  Then, the Fed is *paying* the banks for those deposits "on reserve".

In essence, the Fed is taking toxic assets, paying too much, and then paying banks nightly because the banks have all this cash.  At a minimum, that is liquidity injection.  At a maximum, the system is leveraging up further (more dollars, assets still inflated way above their market value).

The "closed loop" issuing of debt thus becomes distorted.  We can no longer assume (TOTAL_DEBT == TOTAL_LIABILITIES).  That would be like saying the $1.4Q worldwide derivatives market is not a problem because most of those trades "cancel out".  In contrast, I assert a small percentage of a big number is itself a big number, and we now exist in a world where a rounding error can wipe out worldwide GDP.

With the Fed's recent announcement that they will directly buy Treasury bonds, the result is simply more dollars in existence (backed by more bonds).  It's a "closed loop" in that it has nothing whatsoever to do with *actual* productivity.  However, our GDP numbers will go up, and Federal spending will similarly go up.

They are levering up.  And no, that net effect is not offset by liabilities-backed-by-assets:  Neither the Fed nor the Treasury are adding any assets to the system (and yet they *are* adding dollars).  In actuality, the Fed and the Treasury are *removing* assets from the system as capital is shifted from "productive" to "non-productive" efforts.  Thus, the net result of their actions (increasing leverage) is inflationary.

Of course, that is dwarfed by the credit collapse, so we are still in a deflationary depression.  When the dam busts, though, it will not be a controlled return to prior system stability (before leverage).

Mon, 08/16/2010 - 19:14 | 524937 mmlevine
mmlevine's picture

Excellent synopsis - thanks.

Mon, 08/16/2010 - 18:06 | 524807 MachoMan
MachoMan's picture

Fear of Japan 2.0.  We don't and we aren't gonna...  That's the point.  The smart money is piling into bonds and the algos are still playing pong on a couple shares over in the stock market.  This is the acknowledgement that QE 2.0 isn't coming with a bang, it'll come with a whisper.  Completely propping up every auction got too expensive when no one wanted to participate, so, enter euro crisis and flight to quality...  it's the only way they can get rid of any shit.

This is why bernake says the administration needs to get its spending habits in order...  they can't prop it up forever without demand...  the rollover alone is enough to choke a goat.  The FED is still involved, but it's actually getting some outside help now.  Think 2008...

We continue this way until default/repudiation hits.  My guess is we cry uncle before we miss a payment.  How about 2% flat on the 10 year?  .5%?  Last domino wins...  for a while.

Mon, 08/16/2010 - 15:11 | 524454 Bam_Man
Bam_Man's picture

The lower rates go, the quicker the Fed's MBS and GSE Bond portfolios liquidate (due to mortgage re-financing and bond calls), and the more QE the Fed can apply to the US Treasury market.

A self-reinforcing loop. This bubble can get a lot bigger before it busts. 


Mon, 08/16/2010 - 15:23 | 524489 Young
Young's picture

Right on. It's gonna be huge, and the people holding it will feel like they are standing with their faces in front of John Holmes spewing "weapon" - they will feel fear, the will feel disgust, they will feel raped.

Mon, 08/16/2010 - 15:37 | 524513 LeBalance
LeBalance's picture

And Peter North and Ron Jeremy at the same time!

Wait....I feel a show title....cumming to me.....

"Cross-fire"  ????? The newd reality shew this Fall!

Mon, 08/16/2010 - 16:00 | 524566 Ricky Bobby
Ricky Bobby's picture

OMG fell on the floor- Hilarious

Mon, 08/16/2010 - 15:32 | 524506 LoneCapitalist
LoneCapitalist's picture

Thanks Bam Man

Mon, 08/16/2010 - 15:11 | 524456 American Dreams
American Dreams's picture

Relax everyone the 10yr has seen lower yields before.  Geeez it was Jan of 2009 and everything has been just rosie since then, come on don't cha remember.....


there be no shelter here

Mon, 08/16/2010 - 15:18 | 524472 LostWages
LostWages's picture

For all you waiting to ride Uncle Benny's Short Bus to bondland (via Tijuana), there will be a slight delay.  They are having a problem keeping the tires inflated.

Keep your helmets on.

Mon, 08/16/2010 - 15:20 | 524481 99er
99er's picture

Chart: ZB

The Long Bond futures have gone ballistic...

Mon, 08/16/2010 - 15:25 | 524496 Sancho Ponzi
Sancho Ponzi's picture

'And here, courtesy of credit trader',

Added: and Bernanke's $300 billion QE2 HELOC,

Mon, 08/16/2010 - 15:28 | 524499 itsjustgraft
itsjustgraft's picture




Mon, 08/16/2010 - 16:57 | 524692 AEGeneral
AEGeneral's picture

Did your caps lock go full retard, too?

Mon, 08/16/2010 - 21:48 | 525204 StychoKiller
StychoKiller's picture

Didn't get the memo did ya?  Small businesses don't need credit, they need customers and income!

Mon, 08/16/2010 - 15:34 | 524508 HedgingInfinite...
HedgingInfiniteRiskIsNotPossible's picture

The Fed will continue to try to get long-term rates down, because they think this is good for the economy, when money is "cheaper". It would be so funny if it weren't so tragic. How did these clowns even get out of the first grade, much less become our lords and masters?

Read some Antal Fekete, if you haven't already!


I am hedginginfiniteriskisnotpossible. Yes, I know a chose a name that is too long.

Mon, 08/16/2010 - 15:43 | 524511 TooBearish
TooBearish's picture

Unintended consequence of QE2 - flat yield curve - bank "earnings" plumment


PS wheres the short stocks, short bonds convergence trade rec? Spoos owe the bond mkt about 100 points lower no?

Mon, 08/16/2010 - 15:35 | 524512 MountainMan
MountainMan's picture

With all this impending doom and gloom...makes me appreciate the simple life of "Simple Jake" ...oh well....

Mon, 08/16/2010 - 15:38 | 524515 MountainMan
MountainMan's picture

by the way, never go full retard!

Mon, 08/16/2010 - 15:40 | 524520 buzlightening
buzlightening's picture

Upside down snow blow and handle job forming on the djia & nas!  In the 3 rigged circus paper chase, the winners are the shufflers; paper ponzing go round idiots/ clowns by minions lining up  to throw away chit wipe dollars!!  It's a 3 rigged/ring circus by the dead head fed goons , for the goons; one nation under fraud!  Amen!!  Traded any paper fiat currency for real monetary stores of value?  Then you're an idiot, clown, or slow native!  Goo between elephants toes when the financial collapse takes you as a stampeding herd of elephants and you're  crush as a very slow native unable to think for themselves!!



Mon, 08/16/2010 - 15:42 | 524524 RobotTrader
RobotTrader's picture

Here are pictures of the 30-yr. bond acting like ""


Mon, 08/16/2010 - 15:59 | 524562 buzlightening
buzlightening's picture

No slow native RobotTrader!  Thx for charts-a-lot telling storing!!  Crash boom bust!!

Mon, 08/16/2010 - 15:48 | 524536 firstdivision
firstdivision's picture

Wow this is utterly an amazing day.  About to end in the green with all that awesome economic news.  Anyone watch the SPX from 3:38 on?  It is amazing the blow up in ticks.  Obviously 33 Liberty St. hit the "Buy Everything" button.  Just amazing how it shot up on no news.  I seriously hope that "Anonymous" hack 33 Liberty St. and post their trading records for the past 12 months.  Would be nice to know how much SPOOS we as tax payers own. 

Mon, 08/16/2010 - 15:53 | 524545 bankonzhongguo
bankonzhongguo's picture

The Fed is just buying America piece by piece on these rates.

Take the Fed out of the equation and yields would 4x overnight based on real risks.

People forget that the Fed only got in the business of accepting fiat paper from the Little People and their Little Government, when it was backed by the payroll FICA taxes.  No/low incomes.  No tax revenue.  Higher risk of timely payment.  More borrowing to feed the monster.  Rates go up with risk.

At what point do the other central banks realize that the weekly paychecks of Americans can't fund a fraction of the debt service.  Game Over. 

Mon, 08/16/2010 - 16:14 | 524595 Treeplanter
Treeplanter's picture

Banko, I think they all know it's a faith based scenario.   The big boys are buying time to get their situations all sorted out.  Something spooks someone somewhere and the herd stampedes out the exits.  The smart money is already in the seats closest to the doors.  At the moment my gold shares are going up while I'm lusting for the TBT to go down to bargain basement level.  So far so good.  Somebody is going to make money, I hope all the retards at ZH will cash in, even the gold adverse fools.  

Mon, 08/16/2010 - 17:00 | 524696 NotApplicable
NotApplicable's picture

That's why the US has so many nukes. Why with just one you can roll debt for a long time.

Mon, 08/16/2010 - 20:21 | 525054 hamurobby
hamurobby's picture

The Fed is just buying America piece by piece on these rates.


I think some guy named Thomas Jefferson warned us about such, somewhere around the time the 1st fed bank was shut down. Here from wiki, were some of the rules, then.

"There were other, nonnegotiable conditions for the establishment of the Bank of the United States. Among these were:

  • That the Bank was to be a private company.
  • That the Bank would have a twenty year charter running from 1791 to 1811, after which time it would be up to the Congress to renew or deny renewal of the bank and its charter; however, during that time no other federal bank would be authorized; states, for their part, would be free to charter however many intrastate banks they wished.
  • That the Bank, to avoid any appearance of impropriety, would:
  1. be forbidden to buy government bonds.
  2. have a mandatory rotation of directors.
  3. neither issue notes nor incur debts beyond its actual capitalization.

See, I do have some usefulness around here.

Can you remember a time when, in retrospect, you can not believe such an opportunity was staring you in the face, and yet you did nothing, much like that deer that Tyler posted a few weeks ago.

Mon, 08/16/2010 - 16:03 | 524573 firstdivision
firstdivision's picture

This is a stock that is completely dislocated from any reality whatsoever

Up over 4%

Mon, 08/16/2010 - 16:05 | 524577 aheady
aheady's picture

Head-on collision

Bodies everywhere

Head-on collision

Retards beware

Mon, 08/16/2010 - 16:20 | 524591 Leo Kolivakis
Leo Kolivakis's picture

We got ourselves a full fledged bond bubble!

Mon, 08/16/2010 - 16:26 | 524628 Brian
Brian's picture

What is the best way to short the 10 year?  Anyone have an idea how to get highly leveraged short positions?

I'm not planning to do it yet, but I want to be ready once yields have dropped to the full bubble :)

Mon, 08/16/2010 - 17:32 | 524755 ozziindaus
ozziindaus's picture

What is the best way to short the 10 year?

Open toilet lid. Insert money. Flush.

Mon, 08/16/2010 - 17:47 | 524777 Brian
Brian's picture

hmmm, I tried that on the S&P when I shorted it a year ago.  Didn't work as well as I wanted.  I was hoping for a different strategy this time ;)

Mon, 08/16/2010 - 17:58 | 524802 ozziindaus
ozziindaus's picture

Then don't short the bonds. Evidence is in every posted comment.

Just remember, the bond market is greater than the any single institution (Fed) or Nation (China). 

Think of it this way. If you had to invest your last dollar, who would you trust to return it? Last dollar OK. That's the desperation the Bond market is showing and by the looks of the yield curve, it's not about to be resolved any time soon. 

Mon, 08/16/2010 - 19:16 | 524942 Geoff-UK
Geoff-UK's picture

That's a better trade--your counterparty risk is the toilet backs up versus you getting called unAmerican by President B.O and you lose your money anyway.

Mon, 08/16/2010 - 16:26 | 524629 trav7777
trav7777's picture

It takes off the steepener trades or it gets the hose again.

Didn't we just talk about this the other day?  I said GROSS.  The Fed is going to push everyone out the duration curve by systematically depriving them of short-term yields.  It is OBVIOUS.

They desperately want people to borrow to buy things.

Mon, 08/16/2010 - 17:31 | 524752 ozziindaus
ozziindaus's picture

yields don't make people borrow. Perception, mood and sentiment does. Besides, what are you going to do with all that money anyway?

Mon, 08/16/2010 - 16:40 | 524649 bruce wayne
bruce wayne's picture

Bought some TBT today.  As a member of the deflation camp I hate myself for it but I just can't see a justification for the 10 and 30 yr to be moving exponentially like they have the past two weeks.

Mon, 08/16/2010 - 16:43 | 524664 HedgingInfinite...
HedgingInfiniteRiskIsNotPossible's picture

May the force be with you.

Mon, 08/16/2010 - 18:43 | 524878 PeaBird
PeaBird's picture

but I just can't see a justification for the 10 and 30 yr to be moving exponentially like they have the past two weeks.

really? here's one, read this:

IMO based on the conclusions from this Kirby post, one merely only look at the size of the interest rate derivative market every time the OCC releases, and if it's getting larger, then chances are high that interest rates will remain at the low end of the scale.

Besides, when the treasury of the world's largest debtor, who happens to also be the world's "stand over" man, has a symbiotic relationship with the central bank of the world's reserve currency, would one expect interest rates to rise in the face of an exponential rise in debt issuance, given a financial structure which includes the shadow banking system?

So far, the answer to that question is "No"... but for how long?

I haven't a clue, but IMO, looking at a very long term US long bond yield chart, one would be inclined to suspect that the second leg of a double bottoming process is currently underway. With the first leg being late 2008 during the depths of the so called "GFC".

Mon, 08/16/2010 - 16:45 | 524666 mellmeister
mellmeister's picture

I hear the roar of a big machine, de-flation (bitchez!) and methedrine, I hear empire down, I hear empire down.

Mon, 08/16/2010 - 16:54 | 524685 ATM
ATM's picture


Just a little more!

Mon, 08/16/2010 - 16:58 | 524693 redpill
redpill's picture

Miracle on 33 Liberty Street

Is Uncle Ben the real Santa Claus?

Mon, 08/16/2010 - 17:07 | 524711 Magua
Magua's picture

That is what you call parabolic, my friends. I think we will see the ten year at 2%, twenty at 2.5% and thirty at 3%. I hope for our sake that those will be the lows.

Mon, 08/16/2010 - 17:24 | 524739 TraderTimm
TraderTimm's picture

One of my favorite tirades from the movie:

Les Grossman: First, take a big step back... and literally, FUCK YOUR OWN FACE! I don't know what kind of pan-pacific bullshit power play you're trying to pull here, but Asia Jack is my territory. So whatever you're thinking, you'd better think again! Otherwise I'm gonna have to head down there and I will rain down in a Godly fucking firestorm upon you! You're gonna have to call the fucking United Nations and get a fucking binding resolution to keep me from fucking destroying you. I'm talking about a scorched earth, motherfucker! I will massacre you! I WILL FUCK YOU UP!

Thanks for the Tropic Thunder quote, Tyler - gave me a good laugh!

Mon, 08/16/2010 - 19:19 | 524947 Geoff-UK
Geoff-UK's picture

Who's the key grip?!

Mon, 08/16/2010 - 17:29 | 524746 ozziindaus
ozziindaus's picture

What's good for Treasuries is good for gold. Why all the hostility?

Mon, 08/16/2010 - 17:33 | 524754 Truth
Truth's picture

no doubt there is naked shorting.   Just read Jim Willie's latest on article.  Bond yields will be going up shortly as the chart looks parabolic.

Mon, 08/16/2010 - 18:27 | 524850 roadrunner
roadrunner's picture

When will the 10 year lower the 30 year mortgages?  We've been stuck at 4.5% 30yr mortgages for a few weeks while the TNX has been on a freefall.

Mon, 08/16/2010 - 19:18 | 524946 Saxxon
Saxxon's picture

Indeed Roadrunner and my thought as well.  I bought in November '09 and have a 30-yr fixed at 4.5; I am planning to refi at a 15-yr at 3.75.

I could get it today but with a lot of upfront cash.  I may wait for 3.5.  When does it trickle down to the man in the street - or maybe it doesn't.

Mon, 08/16/2010 - 21:33 | 525178 ElvisDog
ElvisDog's picture

You're a sucker. They want you to keep rolling over your loan by refinancing. The more the merrier, because you're paying them thousands in loan fees and other charges every time you do. Here's an alternative plan - pay off your mortgage and tell them to fuck themselves.

Mon, 08/16/2010 - 18:39 | 524865 grunion
grunion's picture

I was trying to remember when I had last heard or read the words, "soft landing...."

Mon, 08/16/2010 - 19:02 | 524913 Cognitive Dissonance
Cognitive Dissonance's picture

Just moments before that (very heavy) pallet of bricks was dumped on your head.

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