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$42 Billion 2 Year Auction Closes At 1.119% High Yield, 2.68 Bid-To-Cover
The first of many Treasury Bond auctions for this week passed. Many, many more to go.
- Yields 1.119% vs. Exp. 1.115%
- Bid-to-cover 2.68 vs. Avg. 2.86 (Prev. 2.75)
- Direct bids 49.4% vs. Avg. 47.66% (Prev. 33.01%)
- Allotted at high 92.32% (BBG)
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What exactly is the marginal indirect bidder now? Spooks with suitcases?
What portion of this auction will the Fed be repurchasing from the PD's? Ooops, that's a secret isn't it? Sorry.
So whats all this mean? investors are buying public debt for a 1.00% return, is that right?
More correctly..., the public is buying the public debt.
Or something like that.
Not quite. The public will start buying the public debt once they have been completely convinced that the stock market is nothing more than a crooked casino and they are looking for more than 0.05% in a Money Market Fund or bank account.
It will happen and it MUST happen in order for the US Treasury Ponzi scheme to continue.
True, investors will more than likely flee to bonds and bills once the bloodletting starts. I was meerly suggesting that gov money buying gov debt is public..., sorta kinda.
Guess it doesn't matter what the yields are, when the Fed is going to buy them back from you in a matter of weeks for a fat profit.
Can't tell how much of this is a market, vs just a chosen few lucky kids bunched around a broken candy machine...
Didn't the banks get into trouble by borrowing short and going long?
I guess nations can do it too.
..and TLT rises....
The only explination I can think of is that this 'bad' auciton scared some people...but the 'safe' investments that they know are treasuries...so they bought the long term treasuries....
Maybe I am putting too much into this relativly small bounce in TLT...who knows.
TLT has been rising for 2 weeks (from 88 - 90), needlees to say - just the opposite for TBT. If you look at last years chart, this was the time it was rising just as the market was starting to tank. My guess would be, that is where the "smart money" is going in anticipation of this years up coming decline (all the insiders that have selling BILLIONS of dollars worth of their company shares).
2 weeks ago I bought TLT calls (jan), TBT puts (jan), JNK puts (dec. - truly looking for these junk bonds to explode again) and puts on LQD - high yield corporate debt (march). TLT and TBT have done very well and once the market cracks, JNK & LQD will be right behind them.
This pattern is really following last year nicely and you gotta figure that with all the "frothing" in this market.......last year may look like a picnic compared to this year.
Just my thoughts!
Theres got to be a clear easy way to portray the data of the FED buying all these after the fact. Where are the creative types here?
Indirect Bidders account for almost HALF the purchases!
How long can they keep up this charade?
I will answer my own question.
"Not for long."
And out of desperate necessity, the stock market will be "thrown under the bus" shortly.
One has to assume that the FCB's who are providing the Indirect Bids have been assured that a "flight to safety" trade (and a sharp rise in the Dollar as well) will be instigated soon.
That's the only way any of this makes sense.
It's starting to look like it might actually make it until October however. Still more room for the indices to magically float upwards before the drop. Then the flight to safety, then when that tops, I'm out of bonds and hedging for inflation in earnest. That's my current game plan anyway.
Waiting for the market to finally crash has been like watching paint dry. We all know that interest rates cannot stay this low forever and any increase will kill any so-called "recovery".
That is a box that the great BB has gotten us into. At current interest rates, the only "real" purchaser of debt is the fed.
How can the Fed buy it's own debt? is this whats going on?
As an old song once put it..., there must be fifty ways.
Large sums of money, at the taxpayers expense, have been funnelled into banks that don't seem to be lending much of it out. It, however, might be used to buy these auctions. Pretty slick deal for the banks and the gov. wink wink
Large sums of money , at the taxpayers expense, have made their way into other country's central banks, who in turn are buying these auctions. wink wink
The list can go on and on.
You would think that the Primary Dealers have gotten wind of the very same thing. Otherwise, they'd be looking pretty stupid if rates took a bounce.
Of course. That goes without saying.
There are "benefits" to being a Primary Dealer that go along with the "obligation" to place bids at auctions.
completely agree. Todays market action only reinforces this
It would really suck for these guys if asset prices rose substantially in two years. Maybe they know something the stock market doesn't.
"The Quadrillion Dollar Bill" TV Series:
Opening sequence starts with a secret meeting in 1913 - "Gentlemen, we can print it. We have the technology. We have the capability to print the world's strongest currency. The US dollar will be that currency. We can make it better than it was before. Better, weaker, faster."
Wow, how badly do equities want to tank at this point despite the desperate "up only" market prop measures? Today looks like a serious tug-of-war.
The participants in these auctions can't be in them for the paltry coupon. And they are not in them to lose money.
You seem to have one large section of the market betting on a flight to safety; and another portion of the market apparently betting on new highs in the equity markets. Even the USD remains relatively stable.
This is the best of all worlds for the Fed-ury. If they can get the bulk of issuance out of the way at a low average coupon, they will be sitting pretty come time to engineer a flight to quality trade. The longer they maintain the balance, the more likely they are to put off the flight to quality trade.
I'm actually impressed by the sheer audacity of the plan, and thier ability to get away with it.
They have been doing a good job of it for some time now. Louder voices in the "mainstream" either don't get it, don't care, or are complicit.
Surely the wider picture is that falling interest rates are making companies terrified to invest or create jobs, and instead sitting on cash or short-horizon treasuries?
We won't see a recovery til employment starts growing, and that won't happen til interest rates start rising.
Get prepared for a long decline.
42bn raised, 48bn remaining (90bn new cash needed this week).
http://www.treas.gov/offices/domestic-finance/debt-management/quarterly-...
I work at a brokerage and we are certainly not the type to foolishly buy into a rally and go 100%.
Don't you think people are quietly exiting the stadium? Heck, look at all the insider selling. That alone could buy some of this (kind of joking but not really).
But the fed is just printing money to pay for the debt so who is really on the hook? Not the fed.
The bond market will be "saved" by the collapse of equity prices this fall. No other way around it. That is why we are getting the pump job of the century on BS.
I am in the deflation camp until the debt comes down to some sort of rationality. I know it's silly to consider the ability to service the debt, public and private.
Then we will have the hyperinflation that the fed is craving.
Found this and thought I would share.
R
What's the Bond Market Saying?
Tom Petruno
L.A. Times
February 13, 2005
Imagine this deal: You give the U.S. Treasury a $1,000 loan repayable in 30 years. And in return, the Treasury guarantees to pay you 10% interest every year.
Yes, 10%.
It's an offer that probably would lead to riots outside local federal buildings as people rushed to get applications, not trusting something this lucrative to the Internet or regular mail.
Yet just two decades ago the Treasury was quite willing to pay 10% on its 30-year bonds — only to find that there were few takers. The government had to offer more than 13% by mid-1984 to finally entice buyers.
Those yields are ancient history, except for the lucky few who bought bonds in 1984 and still hold them. But there may be a lesson for investors today in the mind-set of the market 20 years ago.
Back then, many investors were too frightened by the bogeymen of that era — inflation, soaring federal budget deficits and the sense that America was in a sustained decline — to take a chance locking in long-term interest rates that now look like a gift from heaven.
In recent months, a different kind of fear seems to have permeated bond markets worldwide: fear that long-term interest rates might only go lower.
Investors have been aggressive buyers of long-term government bonds in the United States, Europe, Japan and elsewhere since June, in turn pushing down the yields in the market place.
The annualized yield on the 10-year U.S. Treasury note fell as low as 3.98% last week, down nearly a full percentage point from mid-June. The German government's 10-year bond yield fell to 3.45%, apparently the lowest in a generation.
By the end of the week some investors were having second thoughts, and long-term interest rates ticked higher.
But the hunger for bonds has been so strong since mid-year, and particularly in recent weeks, that it has triggered widespread discussion on Wall Street about the message of the market.
Could long-term bond yields be headed so low in the next few years that a 4% return today would appear rich by comparison?
Or are bond buyers today making as big a misjudgment as those who were unwilling to buy in 1984?
There are, of course, many players in financial markets, and their motivations for buying or selling at any given moment can differ substantially.
Many bond market pros have attributed some of the recent buying wave in long-term bonds to short-term speculators, such as hedge funds, that seek to make a living riding market rallies wherever they can find them.
To those investors, there is no point in trying to determine whether a 4% yield is a fair long-term return, because that isn't the reason they're buying. As long as bond prices are moving up (that's what makes yields go down), speculators can hope to sell a bond for more than they paid for it — perhaps in just a few hours or days.
Asian central banks also have been credited with stoking the bond rally. China, Japan and other nations that enjoy huge trade surpluses with the United States have recycled many of those dollars back to the U.S. by buying Treasury securities. The money has to go somewhere, and the central banks know that by buying dollar-denominated securities they can help support the buck's value, which also means supporting Americans' ability to buy foreign-made cars, TVs and other goods.
That would help explain the decline in U.S. bond yields. But why have European bond yields fallen even more dramatically?
Michael Rosen, a principal at Angeles Investment Advisors, a pension consulting firm in Santa Monica, points to rising government pressure in Europe and in the U.S. to force corporate pension plans to plug funding shortfalls in their plans.
Pension regulators want the funds to better match their long-term assets with what they'll owe beneficiaries over the next few decades, Rosen said. One way to do that is to lock in a return on a 10-, 20- or 30-year government bond, as opposed to taking a chance on uncertain stock market returns.
If this idea catches on, it could mean robust demand for long-term government bonds for years to come — and continued downward pressure on those yields and others that they affect, such as mortgage rates.
But all of these factors affecting bond yields are ancillary to one other: What is the long-term outlook for inflation?
If you think that inflation worldwide will rise in the next decade, you wouldn't want to lock in current bond yields. Inflation eats away at fixed returns.
U.S. inflation, by various measures, is in the range of 2% to 3% (at an annual rate). If it were to jump to 4%, suddenly the real, or after-inflation, return on a 10-year Treasury note would be nearly zero. Hardly attractive.
Moreover, higher inflation would require the world's central banks to raise short-term interest rates.
The Federal Reserve has been lifting its benchmark short-term rate since June, with the stated goal of keeping inflation suppressed by gradually making money less available.
Do falling U.S. long-term bond yields say that investors believe the Fed soon can declare victory and halt its credit-tightening campaign? Maybe.
There also could be a more dire message in the bond market's trend: Perhaps global economic growth is poised to slow dramatically in the next few years. That could unleash fear of deflation, rather than inflation. In that environment, stock market returns could be abysmal, and someone who locked in a 4% bond yield today might look brilliant if interest rates in general were sharply lower.
But some bond market veterans say it's an exercise in wishful thinking to imagine a steep further drop in bond yields.
In the early '80s, investors were afraid to lock in double-digit yields because they thought the experience of the previous 20 years — rising inflation and rising interest rates — would go on forever, said Jim Grant, editor of Grant's Interest Rate Observer newsletter in New York.
Similarly, bond buyers today are extrapolating the experience of the last 20 years — declining inflation and declining rates — out to the horizon, he said.
"I can't help but view this moment as the mirror image of what we saw" in the early 1980s, Grant said. A bond buyer today, he said, is courting heartbreak.
Damn! I was just yearning for some sage advice from Jim Grant. Thanks from the bottom of my heart.
Ok, so he's saying the bond market will reverse soonish, short bonds.
so, yesterday the offer-to-cover was 4.8 and today the bid-to-cover 2.68. what gives?