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$37 Billion In Two Year Treasurys Price At Record Low Yield 0.498%, 3.12 Bid To Cover, Indirects Take Down Lowest Since April 2009

Tyler Durden's picture




 

No major surprises in today's 2 Year bond auction, which came as expected at a record low yield of 0.498% (0.67% previously), and a 3.12 Bid To Cover (3.33 previously). 95.59% of the auction was allotted at the high yield (oddly, the low yield was 0.396% - a pretty substantial low-high range). The Direct Bidders took down 12.07% of the auction, but the most notable shift was that Indirects (the Chinas of the world, which as we pointed out had been reducing their holdings), took down a mere 29.25%, the lowest since April 2009. The result was that Primary Dealers were stuck with buying the largest portion in a year: at 58.7%, this was the largest proportionate take down since July 2009. It seems our foreign creditors (and overlords) are aggressively frontrunning the Fed ever further to the right on the curve.

 

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Tue, 08/24/2010 - 13:20 | 540690 Mako
Mako's picture

Game over is coming into view.  The fireworks should be quite entertaining this time.

Slow death(collapse) then liquidation of the non-performing liabilities.

The Fed can no more make a tapped out system not tapped out then the Wizard of Oz could doing anything other than put on a show behind the curtain.   There are no helicopters, there is no magic, it's all BS. 

Eventually chaos and death are the result of human stupidity.

I get a kick out of people on here and on CNBC looking for a way out... oh, but if you just do this or do that.... hahahaha.  Best entertainment ever.

Tue, 08/24/2010 - 13:16 | 540702 tunaman4u2
tunaman4u2's picture

Its over... 

The Feds policies have failed: See housing today, treasuries & jobs last week.  Its going to take exponentially more $ to extend the pretend & that leads to the final wall, hyperinflation.

Theres no more places for the Fed to run. 

Tue, 08/24/2010 - 13:21 | 540715 SheepDog-One
SheepDog-One's picture

'Flight to safety' in bonds that pay out in dollars? I wouldnt touch them with a 10 foot pole...FED the only buyer here.

Tue, 08/24/2010 - 13:24 | 540724 papaswamp
papaswamp's picture

I get better rates from 3 month CDs...what idiots buy these?

Tue, 08/24/2010 - 13:31 | 540758 MarketTruth
MarketTruth's picture

Banksters get literally free money loans from the Fed. They take that free money and buy this debt junk to keep the debt scheme going. Fed buys back said debt junk from banksters soon thereafter and banksters get profits (more free money yet this time totally clear of any obligation).

Tue, 08/24/2010 - 13:32 | 540761 SRV - ES339
SRV - ES339's picture

Game over is coming into view.  The fireworks should be quite entertaining this time.

Starting with the unusual spike in gold... in the middle of a $37B Treasury Auction... this could get very interesting indeed!

Tue, 08/24/2010 - 13:34 | 540766 qussl3
qussl3's picture

A market crash in the short term or hyperinflation in the medium?

Hell of a choice.

Tue, 08/24/2010 - 13:38 | 540781 TheMonetaryRed
TheMonetaryRed's picture

 

So where are these "Bond Vigilantes" I keep hearing about?

Where are the failed Treasury auctions?

 

Tue, 08/24/2010 - 14:00 | 540868 SRV - ES339
SRV - ES339's picture

I gather you haven't noticed the markets "tanking" during high value auctions... flight to safety... until the auctions are over. Then (amazingly) we get some "good news," giving HAL the sign to pump up the markets again (until today, gold was also on the hit list... I'm sure Tyler is working on 'why now' as we speak).

Tue, 08/24/2010 - 14:16 | 540902 TheMonetaryRed
TheMonetaryRed's picture

 

Sorry, but this is gibberish. What I've noticed is auctions with excellent bids, followed by higher prices and more good auctions. 

Look, there are very serious fiscal problems, but face it: those who have predicted a collapse of the dollar and bonds have been wrong.

 

 

Tue, 08/24/2010 - 14:25 | 540924 deadparrot
deadparrot's picture

Swap the words "dollar and bonds" with "tech and Nasdaq" and you sound EXACTLY like the average investor in early 2000.

Tue, 08/24/2010 - 14:53 | 540985 TheMonetaryRed
TheMonetaryRed's picture

 

I'll be the first to tell you that financial assets are overvalued. The question is what ones are over valued worst and why. 

The U.S. and E.U. governments are going to borrow a LOT more money. They are also going to monetize a LOT of debt - at the institutional, not the retail level. 

So what?

So they'll violate "the rules".

Again, so what?

We live in a credit-hungry world where most of the world's economies are starved of growth. If we can't figure out where to send excess dollars and euros, we're idiots. 

 

Tue, 08/24/2010 - 15:12 | 541016 MichaelG
MichaelG's picture

Well, speak for yourself, but why would you say those assets are overvalued?  (Excess credit-hunger matched only by 'innovative' means to meet that hunger?)

Are we still in a 'credit-hungry' world, or is that world coming to some sort of end?  Is it just governments who are eager to extend their debt waistlines and pretend they are still fit & trim and not about to keel over from a fiat heart-attack?  I don't see a great demand for more lending coming from anywhere else.  (As an e.g: mortgage rates at record lows, existing home sales also at record lows.)

Which 'rules' do you refer to, and why so blasé about their violation?  (I'm not wishing to get into a 'ZH board argument' here, because I'm vastly underqualified to have one, but I would like to know what you think.)

Tue, 08/24/2010 - 16:58 | 541340 TheMonetaryRed
TheMonetaryRed's picture

 

The "rules" I refer to are the rules that some people think apply to currencies. People who take the view of Mises and Marx that currency represents (or should represent) strict commodity correlation don't know what currency is. Currency is the crystallized relationship between creditor and debtor, not a counting unit for commodities. 

Fiat currencies are priced in the market. Even if a sovereign inflates a fiat currency, the market can hedge against inflation or even bet on it. When fiat producing sovereigns default  - and they will, albeit selectively and carefully - a lot of money will die and go to money heaven, but they will monetize debt to create new money in its place.

The relationship between creditors and debtors will be reworked. Debtors will be angry and threaten to stop lending. Governments will come up with new credit-creation schemes. It was ever thus.

If people think there's going to be inflation, then they should be figuring out which goods or services do best in an inflationary environment and investing in the companies producing them instead of whining about "fiat" this and "fiat" that. To the extent they've done that with investments in companies like POT, they've forgotten that the expanded global market for these commodities has itself to be funded with credit.

It will require credit for huge swaths of land in Africa, South America and Asia to be turned over to the tractor and for chickens, pigs, cows, goats and fish to be raised. It will take even more credit to build the basic industrial infrastructure for the billion-plus people who will leave the land and need jobs so they can buy those value-added agricultural products (and houses, motorbikes and cell phones). 

The history of credit is a history of (persuading, even fooling, then) matching rich people who want to lock in gains on their "wealth" and (persuading, educating, organizing)poor people who want to produce a better life for themselves and everybody else - thereby making that "wealth" into something real. 

I agree that a kind of world is coming to a kind of end. It's the world in which people imagined they could get rich by buying things and having guns.

Soon people will realize that you get rich by lending a dollar and then lending a hand (and a brain and a computer, some power and water and a little good will and tolerance never hurt).

Again, it was ever thus. 

 

 

Tue, 08/24/2010 - 17:51 | 541496 MichaelG
MichaelG's picture

Fascinating, thankyou.

Tue, 08/24/2010 - 14:31 | 540938 redpill
redpill's picture

That it hasn't happened yet doesn't make them wrong.  Like many things in economics and life, it works until it doesn't.  With the circular scheme of the Treasury, Fed, and TBTF banks, it's not easily predictable how long they can keep the merry-go-round going.

 

Tue, 08/24/2010 - 14:43 | 540959 TheMonetaryRed
TheMonetaryRed's picture

Of course I see the same kind  of "circular scheme" inflating gold prices (except much worse). 

Am I, therefore and by your logic, "not wrong" even though gold prices are climbing?

 

Tue, 08/24/2010 - 14:41 | 540954 SRV - ES339
SRV - ES339's picture

but face it: those who have predicted a collapse of the dollar and bonds have been wrong.

"Sorry," but "gibberish" is accusing me of predicting the collapse of the dollar and bonds when I did no such thing. So let me try again... the bond and equity markets are being gamed to prop up the bond auctions, and equities... if nothing else, you have to admire the balancing act... for now.

Lets just see how equities do once this weeks auctions are done... anyone else smell "green shoots?"

Tue, 08/24/2010 - 14:44 | 540962 TheMonetaryRed
TheMonetaryRed's picture

All Wall Street ever does and ever has done is promote markets to keep prices moving in the way they want them to move. 

That's their job. 

Tue, 08/24/2010 - 16:23 | 541215 web bot
web bot's picture

have been wrong... so far...

Tue, 08/24/2010 - 19:02 | 541668 Double down
Double down's picture

You need to flip that around. 

That these auctions function as well as they do, that is one form of the problem.  Should one of these auctions fail, meaningfully, that is another, entirely more hostile form of the same problem. 

 

Tue, 08/24/2010 - 13:39 | 540785 jtmo3
jtmo3's picture

Ya, but, but, the dow isn't diving off a cliff and see how it maintains above 10k? This is just a blip, nothing much to see here, please move along. (sarcasm off)

Tue, 08/24/2010 - 14:23 | 540921 deadparrot
deadparrot's picture

I hope Mr. Madhedgefundtrader is buying TBT. He liked it at $70. He must love it at $30. I certainly do.

Tue, 08/24/2010 - 14:33 | 540922 Chemba
Chemba's picture

When will people get it.

Treasury auctions are not used to "fund" our government deficits; they are a monetary device used to control interest rates and the money supply.  They swap excess reserves for treasuries.

There is always sufficient demand, because it is designed that way.  The government has already spent the money so the reserves are already there.  As long as treasuries pay more than excess reserves, zero, then there will always be demand.

There will never be a failed auction.

Tue, 08/24/2010 - 14:59 | 540993 TheMonetaryRed
TheMonetaryRed's picture

 

Exactly.

Well, not exactly, but close enough.  

Unless there is an alternative reserve currency (and, no, that is not gold), or the interest cost becomes so enormous that government payment of interest is itself fatally inflationary (as has arguably happened in some small countries) then the government can mop up reserves and pay wealthy people interest for the use of those reserves - kind of as a partial rebate for their taxes ;-) 

Tue, 08/24/2010 - 17:07 | 541365 Ripped Chunk
Ripped Chunk's picture

The water in the bowl is starting to swirl.

Fri, 10/01/2010 - 06:28 | 617685 Herry12
Herry12's picture

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