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$44 Billion 2 Year Auction Closes At 1.024% High Yield, Directs Surge As Expected
The $44 Billion 2 Year auction closed at 1.024% on a Bid To Cover of 3.03. But not thanks to foreign bidders: Indirect bidders were the lowest in a year, coming it a mere 31.04%, with a lower number record only in April 2009 when it was 28.71%. The slack was picked up by the so called Fed shadow ops/China London trading desk, with the Direct Bidders taking down a whopping 21.41%: the highest by far for a 2010 auction, and the second lowest in history with just the 26.14% in October higher.
and the breakdown of Directs and Indirects:
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Hey Ben,
Remember how you became the only buyer in the MBS market when you started overpaying for everything?
Do you really want that to happen in the treasury market too?
Pleading with the administration to spend less money isn't going to work.
Thougths on why mbs spreads have not leaked wider post QE or what mechanism might be in use to keep them gated
yeah..
that mechanism is called... give Freddie and Fannie as much money as they need to keep mortgage rates low.
as long as they do that, and keep long dated treasury yields under control, they can keep the curtains pulled.
So far Taleb's call of everyone in the US should be short US Treasuries and short SPX has proven to be completely wrong.
Ben's game works until it doesn't.
And make no mistake, he's inflating the bid in treasuries (see the steadily shrinking pile of indirect bidders) the same as he did with MBS.. of which he's now stuck with 1.2 trillion of MBS on the Fed's balance sheet.
as long as he keeps digging, the pile on the other side will get bigger.. that is until something comes along and pushes the dirt pile back over him.
And here comes the obvious follow-up questions:
If Ben is actually gobbling up Treasuries as the infamous "direct bidder", do we see a consummate rise in the Fed balance sheet come next reporting period?
Or is the Fed engaging in massive swaps with other central banks, again?
It seems to me somewhat hypocritical to be preaching fiscal restraint-- why at the same time-- opening the spigots even more on the monetary side by continuing to overpay for paper assets.
Indeeed, I made mention of this in an earlier post. The very idiot, Helicopter Ben, who is claiming the deficit needs to be trimmed or the economy will suffer, is the very same idiot causing the problem, since they seem to be unable to find the printing press "OFF" button. This FED needs to be audited, along with the Treasury, and both Bernanke and Geithner need to be jailed for crimes against humanity and treason.
I would speculate that he's using offshore accounts, say somewhere in England, where their holdings of US treasuries have spiked as of late.
I'm not sure the action at the short end of the curve tells you a whole lot. If things were so good, why not take advantage opf the low rates and come out with a 10-year and a 30-year?
Exactly.
Sane policy, with rates this low, would be to sell at the long end, lock in low rates, and increase stability. But even the banks who are force fed this stuff refuse to commit ritual suicide. The pile up at the short end just proves how unstable this is.
Borrow short and lend long... oh, wait, that's what the S&Ls did. What a coincidinck.
Agreed. More than that, at the clearing price for the Treasury to borrow money at those maturities, regardless of buyers, the Fed's entire economic illusion would shatter like a window with a baseball hit through it.
I agree with you that "so far" this is true, but do not think the clock has run on this game quite yet.
So when indirects take down 31%, and directs take down 21%, does that mean that the primary dealers took down the lion's share of the remainder?
Seems like a long tail to me for a 2 year with "flight" motivations by directs. With median bids at 0.98% to tail back to 1.024 is not a tight result. Kinda shaky result.
Hmm, maybe everyone is running out of cash?
no.
Each time Bernanke takes up the slack in an auction, he is overpaying for the bills because the market wasn't going to take it at the price he wants it to go out at.
that is called an "Inflated Bid"
he did that in the MBS market.. and ended up being the only buyer..
that's why the indirect bidders are disappearing..
if he keeps it up.. eventually the FED will just be circle jerk funding itself through a constant QE loop
Yes, that's the corner he's painted himself into, but what's to stop it? It's not even inflationary. It's just armed robbery, stealing from savers and main street to save the banks. Where's the weak point? Any thoughts?
it works until everyone else figures out what you're doing and starts dumping your currency. then it becomes extremely inflationary and your game falls apart.
which admittedly will take longer with the dollar being the world reserve currency.
however, the further down this spiral that Ben goes, the worse the outcome of the eventual unraveling will be.
which, if you EVER expect to return to normal funding practices, you MUST allow that game to unravel and allow indirect bidders back into the market.
which of course means eventually allow rates to float much higher as you exit your game.
Treasury desparately needs inflation to reduce the real value of the debt, but as Mitchman points out above, the first hint of inflationary rates kills them, as interest expense eats the entire budget. Ben's best hope may be intervention by aliens.
he hopes he's surrounded by idiots.
which so far has been a surprisingly resilient theory.
part of his plan though, requires his thesis proves true and ordinary economic growth returns.
then you can slowly climb out of your hole and very slowly push the dirt back in.
without that,. he just keeps digging..
"if he keeps it up.. eventually the FED will just be circle jerk funding itself through a constant QE loop"
i really expect this to happen, then hyperinflation time~!
May be much, much closer than you think. The coordinated global central bank efforts have not diffused, but rather condensed risk and wound the spring that much tighter.
I fear a sudden quick shudder where it all collapses in an instant.
Nature abhors a vacuum and when distortions, gradients, excesses are more pronounced than ever....the timeline condenses to an instant and the action becomes incredibly violent.
Description of an explosion or implosion.
Hmmm. S&P et al picks today to scare everybody out of the Euro. How much treasury issuance is this week?
I never used to think it was all connected. Its becoming quite clear that it is. I read something on here over the weekend that openly questioned how, after looking at the March numbers, The Fed could keep it going in April and May. I think we have our answer.
It's nice to be the one-eyed man in the kingdom of the blind, eh?
Auction closed...S&P heading back up. We finish green?
Maybe not green but a close above 1200 is a dagger in the heart of shorts. It happens time and time again. People come in and buy these dips. After about the 20th time, shorts at some point will completely leave this market.
What happened Jack-ass?
Just too obvious, isn't it? And always there is plausible deniability, this time being the Greeks.
(edit) Looks like I might be wrong. Selling off into the close at 3:40 PM. Looks like they need more Treasury sales tomorrow so they are spooking the markets late. Oh my God, no melt up into the close.
After every global financial crisis, there are serial defaults. there are no exceptions. watch the dominoes fall
160bps off WI? Is it my imagination, or was that a good print?
Anyone else smell the trouble the Direct Bidders smell that is coming? Market crash anyone?
The Treasurie is done.
Buy your own coin.
"In the 1930s, the United States was in a situation that satisfied the conditions for a liquidity trap on this definition. Over 1929-1933 overnight rates fell to zero, and they remained on the floor through the 1930's. According to Krugman (1998), U.S. interest rates were "hard up against the zero constraint" (p. 137) in this period.
At the time, however, many economists held a different view. Keynes (1936, p. 207) and his followers did not think a liquidity trap was binding in the mid-1930s. They always described the liquidity trap in terms of long-term interest rates. Once short-term rates had been driven to zero, they argued, short-term bonds were equivalent to money, but there was still a demand schedule for money broadly defined reflecting its usefulness as an asset free of interest-rate risk (Keynes, 1936, p. 201; Hicks, 1982, p. 263), so a central bank could depress long-term rates by increasing reserve supply through open-market operations in longer-term bonds."
http://eh.net/Clio/ASSAPapers/Hanes.pdf
What this implies is near zero, or perhaps negative overnight rates and lower yields for long term bonds going forwards.
-F6
I think the folks who wrote "This Time Is Different" have been advocating going long the 30-year.
Its ironic, though they may have just got it right. Higher rates for sovereign bonds isn't really in the cards for "sounder" economies.
Just uploaded a Dow weekly chart showing a bearish broadening top pattern.
And Euro is breaking down now.
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
Timely post right as the market is starting its late afternoon run up on shorts covering for their lives...again.
WHAT??????? Are those FOOLS forgetting about AAPL and INTC???? After them, Harry, my boy!!!!!
Once again, Harry misses the reality.
You guys have great understanding of what is happening for sure, but the one TRUMP card you guys are leaving out is, the very one several of us have talked about for months and I have talked about for quite some time.
CRASH THE EQUITIES!!!! STAGED CRASH kinda like today. Anytime they need to get people back into treasuries, they will crash the stock market. A no brainer plan. Once Benny and his little Timmy G partner get so deep, equities will never rise again for a long long long time. The kicker is they will let all the big houses know in advance when it happens. Go check the bond market the previous 2 days before today. The markets were up, yet bonds were being eaten up in advance of today's decline. This will be the norm soon, very soon .