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$13 Billion 30 Year Auction Closes Strongly At 4.08%, 2.89 Bid To Cover, As Investors Shun Inflation Threat
The last coupon auction for the week was a success, pricing at 4.08%, the lowest yield since October 2009 when the auction priced at just 4.009%. Bid to cover was also the strongest in many months, matching the March interest and lower then just the September 2009 record of 2.92. Primary Dealers took down 46.4%, higher than the past 3 auctions but in line with the long-term average. Surprisingly Indirect bidders showed the greatest appetite for the 30 year part of the curve taking down 37.4%, the highest since the 40.7% in January. Direct Bidders continue declining, and at a 16.1% take down, was the lowest allocation since January's 4.9%. Based on this very strong auction, investors seem to put far more faith in a deflation than inflation scenario.
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Based on this very strong auction, investors seem to put far more faith in a deflation than inflation scenario.
As well they should.
Fiat currencies do not deflate.
That is true!
Do you mean over a century? I say that because obviously we've had prolonged inflation from the advent of the FRN in 1913 to current. However, fiat currencies can and have deflated for prolonged periods before. I'm thinking of the decade from 1929 to 1939, for example. So it is possible and, in my opinion, highly probable this time again.
The US had silver certificates in the thirties, until 1964 actually, but I agree with your larger point. In a highly indebted, poorly managed economy, deflation of a fiat currency is not only possible, it is happening.
A debt backed fiat currency can't be allowed to deflate or it will collapse. That might be more accurate.
Just think of a swollen star shrinking so it can explode into a supernova.
That's the "deflation" we're seeing now.
Sterling was voluntarily, deliberately deflated after WW1 to get back on the gold standard, with the consequent destruction of the economy. Bear this in mind when we watch European leaders voluntarily choose austerity almost a century later.
dealers took half?
that means price is going up in the near term
that is a certainty
Well, since this was a reopening auction from May that was 4-3/8% and it went off at 4.08%, whoever sold their bonds made out like bandits for $7.25 per Thou. The buyers are at the mercy of the PPT. Tricky Timmy trying to save money as he loads the credit card up to the max.
Henceforth Deflation shall now be called Deleveraging and as such returning to reality will lose its stigma.
That is all.
So you watched FRBKC Pres. Hoenig today too huh. Notice his choice words, calling it deleveraging instead of defaltion too?
After watching every auction for a year now I still have no idea what is going on.
No one does. It's all a shell game of paper assets, one strong fire away from an unstoppable inferno.
That's easy, 2 things:
1) We're trying to give ourselves a blood transfusion from our left arm to our right (via the Primary Dealers reinvesting their free Fed funny money in Treasuries)
2) It turns out all America doesn't have a monopoly on over-paid money managers who still have a lot of monopoly money then need to put to work.
Yes, it's that easy.
ok come'on man...Someone please divulge to me what foreign sovereign's could possibley want thse worthless pieces of nothingness over a 30 year period...what the "you know" is this shit about????
please anyone!!!
Central Banks have reciprocal agreements to buy each others debts?
why does nobody except Peter Schiff talk about the bubble in bonds ?
Everyone is talking about the bubble in bonds. Including me. That's why it has been an awful trade this year. But, one of these days, this bubble is gonna blow sky high.
I think there will be one more spasm in the bond market that might send the 10-year to 2.5% - be it QE II or some liquidity crisis in Europe or with the muni's.
Which will set up a nice trade in being short long-bonds. The trouble with being short for the long-term is that you will essentially get paid in the fiat currency when the SHTF. You might win the battle, but lose the war. Just my thinking anyways...
The bubble won't burst until long bonds start showing capital losses from inflation / interest rates upticks.
And inflation won't kick in until inventories are depleted sufficiently to warrant increased production.
Leading to increased hiring and more demand.
The moral of the story, inventories 1st. Inflation 2nd. Bond bubble 3rd.
Maybe, but I think a more likely scenario is the dollar collapses. After all inflation can come when either
1) more money is printed and put in people hands (instead of sitting on a banks books invested in G'ment Treasuries)
or
2) the value of that money decreases because the dollar exchange rate is set at the margin. in other words the supply of money can remain constant from here on out (the printing stops) but if ONE buyer decides they'll bid only a little less than before then the whole house of cards collapses and we get inflation.
Well played by Benron and Turbo Timmy.
Very well played, indeed.
Taleb and Jim Rogers are also big on this being a bond bubble. Should also say this is a T-bill bubble as well!
Deflation, bitches?!
Nassim and Jimbo had better lube up their tender puckers while they have the chance -- the big warty one is headed in their direction AGAIN.
Last chance to lock down 4% in the long and strong end -- do it, DO IT NOW!
this could be tricky. they often have the bid then drop the market for two days to see their wares, then reverse. also knowing the auctions (schedule) this bounce couod be a set up for this bid and another drop. who knows
After an earthquake, the receding waters attract beach goers and fishermen to the helpless sea life that lie on the dry sea bed. When the first person asks “Where did all the water go?”, it is too late.
i wonder how many of those indirect bidders were euro[trash] banks that can already see the light at the end of the stress-test-release tunnel. price going up for sure.
and why not? bonds have typically been a zero-sum investment (aka zero-npv investment) and so investors bake in maybe some USD gains on the back of a continued euro-crisis along with a 2% inflation rate (or less) and you're right back at zero where you started. wow-- that was easy. shawn mesaros
Has it ever occurred to you guys that perhaps you have your thesis wrong? I'm certain the consequences of monetary inflation will make itself evident at some point in the future, but the greater immediate concern for those who manage money and must park it somewhere is deflation.
It seems that whenever data points come out that run contrary to your stubborn views on the economy, many of you invariably cry manipulation. For instance, when gold goes down, it's manipulation; when it goes up, the world is imploding - just as you wish.
Some of you here are just like George Bush. You believe on Wednesday the exact same thing you believed on Monday, no matter what the fuck happened on Tuesday.
Be flexible. And be open to the possibility that the market is far more complex than your one-dimensional, total apocalypse dream.
it ain't a dream, it's a nightmare, and one made real by people like you willfully embracing the fantasy that the markets aren't totally manipulated by criminal banks/authorities and that maybe just maybe borrowing ourselves into bankruptcy will work out just fine
"the greater immediate concern for those who manage money and must park it somewhere is deflation."
I absolutely agree with you. The immediate concern is deflation and the best most liquid safety net is G'ment Treasuries. But remember we're dealing with hundreds of money managers all herding together to get the best monthly return they can. I'd do the same thing if I was scored by the week/month. Who wouldn't.
If your scorecard is in years and decades then Treasuries are an idiots paradise. You go for Food, Oil and Gold.
By the way Gold is manipulated, look up the London Gold Pool on Wikipedia. Have you ever heard the term "History repeats itself"? The truth shall set you free.
I wholeheartedly agree with you. Buying treasuries with the intention of keeping them for any signigicant period of time is a fool's chase, for all the reasons that are espoused by Tyler on ZeroHedge daily.
However, the overwhelming demand for treasuries and bills is not a mystery, despite the opinions of many ZH readers. The entire world is one match stick away from a catastrophic deflationary implosion, especially now that austerity has become the talking point du jour.
Too often, the posters here have such a one dimensional, narrow-minded view of the markets that they cry manipulation, when it clearly isn't.
Everyone here thinks the dollar is going to immediately collapse - maybe down the road it will. It won't happen soon, and it will zoom into the stratosphere before it ultimately shreds into confetti.
"Everyone here thinks the dollar is going to immediately collapse..."
Clearly no one here thinks the dollar will "immediately" collapse. If they did they wouldn't be posting on forums and blogs.
" - maybe down the road it will."
maybe and down the road? Are you an elected official? - because that sounds like a politicians vague explanation to something they know nothing about (a politician like former President Dubya or current Comrade-in-Chief Hussein). It definitely will at SOME point in the future. Anyone posting here is concerned that it will happen in within their own lifetime, or their children's lifetime, and would prefer not to have a couple hundred moron scumbags in D.C. make it a reality. Your statement that the market will fix the situation assumes that this is a free market, however a combination of socialism, corporatism, and crony capitalism is certainly not a free market. Your statements also remind me of all of those on CNBC that laughed at Peter Schiff when he said the housing market was going to collapse and spark a nightmare.
the greater immediate concern ...is deflation.
Agreed, but the 30 year is a fool's errand in either case. We have here the least stable, least sustainable economy since the depression.
If we get massive defaults, bonds are toast, especially the long bond.
If we get massive printing of money to avoid a depression, bonds are toast, especially the long bond.
Do the math. The long bond is the worst possible use of funds right now, and we don't have a clue who the actual buyers are.
AUDIT THE FED
Auctions made simple...Auction = Extra milk money for Banks = Afternoon Stock shopfest for Banks = Market ramp up Job = ZH 4pm Chart presentation.
I call FLUMMERY! MOPE!
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