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Chart Of The Day: Build America Bond Yields Hit 11 Month High

Tyler Durden's picture


Yesterday's highlighted chart was the plunge in the 30 Year bond. Today, we take it one step further and demonstrate what happens to an asset class once it become clear (or unclear) that the government may not prop it in perpetuity. Presenting the average yield on Build America Bonds, which has just hit an 11 month high. If this collapse is a harbinger of what will happen once a Federal props are removed, feel free to just imagine what would happen to stocks if and when the Fed were to withdraw its support of the stock market...

Some observations from Bloomberg on why the shaky BAB domino (whose biggest casualty by far would be PIMCO) better be caught before it plunges and takes down the entire credit (and this equity) market with it.

The average yield on the taxable securities climbed to 6.35 percent yesterday, the most since Jan. 7, as investors demanded a larger premium to buy the debt, according to a Wells Fargo index. Signs that the global economic recovery is gathering pace also pushed down Build America Bond prices, which move inversely to yields, along with U.S. Treasuries and other fixed-income markets.

“It’s uncertainty, the fact that people don’t know the future of the program,” said Christopher Mier, a municipal strategist at Chicago-based Loop Capital Markets LLC, in an interview at Bloomberg headquarters in New York today. Some investors are saying they “may not participate in a market that won’t exist in two weeks,” he said.

The San Francisco Public Utilities Commission today postponed a $524 million debt sale, including $350 million in Build Americas, after the surge in borrowing costs.

States and local governments are set to sell $4.3 billion of the taxable securities this week, the fourth-highest since borrowers began offering the debt in April 2009, according to data compiled by Bloomberg. The New Jersey Turnpike Authority boosted its bond sale to $1.9 billion from $1.5 billion today, Bloomberg data show.

“Outside forces are putting pressure on municipal-bond prices, and investors want to get out now rather than later,” she said in a telephone interview. “Those outside forces are the Build America Bond program possibly not being extended, additional supply in the tax-exempt market and a rise in interest rates.”

In other words, expects chants of "the end is nigh" within 2 days, as the idiot politicians realize that letting BABs expire will first lead to the collapse of PIMCO, immediately followed by that of civilization as we know it (which can not possibly operate without the witty banter of the most self-serving bond manager in existence).


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Wed, 12/08/2010 - 18:12 | Link to Comment Gubbmint Cheese
Gubbmint Cheese's picture

No way PIMCO gets burned on this.. they'll figure out a way to weasel out of this mess.

Wed, 12/08/2010 - 18:26 | Link to Comment EscapeKey
EscapeKey's picture

Well, for some reason I can't imagine a solution which doesn't involve printing a lot of money.

Wed, 12/08/2010 - 18:41 | Link to Comment tmosley
tmosley's picture

How about stealing a lot of money?

You're probably right though.  Straight up stealing (without using a printing press) requires actual effort.

Wed, 12/08/2010 - 18:48 | Link to Comment kaiserhoff
kaiserhoff's picture

CDS through AIG.  In other words, dirt cheap insurance courtesy of the US Taxpayer.  Done deal, but yes, QEn forevah!

Wed, 12/08/2010 - 19:23 | Link to Comment Pure Evil
Pure Evil's picture

We don't need no stinkin' printin' presses.

At the Bernank computer screen:


    Enter amount of money to create out of thin air:> 100 trillion


Wed, 12/08/2010 - 18:37 | Link to Comment kentfinance
kentfinance's picture

QE 2.5

Wed, 12/08/2010 - 19:41 | Link to Comment Hedge Jobs
Hedge Jobs's picture

QE2.5, QE3, QE4 or whatever cant help now. Bond holders have realised the US has no intention of paying back the money they owe. if they do plan to pay back it will be with new diluted USD's which are worth far less than yesterdays USD's. Rising bond yeilds in a low / zero growth economy only ever means one thing as the greeks and irish will atest to: Austerity, and its going to be implemented in the US next year so get ready for it.

Wed, 12/08/2010 - 21:51 | Link to Comment SheepDog-One
SheepDog-One's picture

Whats more fake money going to help...nothin. Everyone knows this game is over. Bernanke could announce hes printing $5 trillion tomorrow and it wouldnt make any difference at this point except to tank the dollar.

Wed, 12/08/2010 - 18:38 | Link to Comment boricuadigm-shift
boricuadigm-shift's picture

Pardon my ignorance, but what actually determines the interest rate of the bonds?  If this means that there are more treasuries in the market than a couple of weeks ago, therefore the increase in price, then why couldn't it be possible that PIMCO and other investors dumping the Treasuries?

Wouldn't this be the start of what Gonzalo Lira mentioned of the loss in faith of the dollar with the dumping in treasuries? ie the beggining of HyperInflation?

Some clarification would be appreciated.




Wed, 12/08/2010 - 20:00 | Link to Comment DonutBoy
DonutBoy's picture

The yield is set by supply and demand.  If more investors want the bonds, they bid up the price, which reduces the yield.  For example, if the bond pays $1/year, and you bid $100 and get the bond, the yield is 1%.  If you bid $90 and got the bond you're getting 1.11%.

The storyline today is that yield is going up and price dropping because investors believe economic growth and some collateral inflation is coming, so they bid less for bonds because they want higher yield.  Perhaps.  Another explanation would be that investors are starting to see a downside risk to $70 trillion in debt.

Wed, 12/08/2010 - 19:18 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Why are bank stocks up today?

Wed, 12/08/2010 - 21:52 | Link to Comment SheepDog-One
SheepDog-One's picture

Uh, cuz Bernanke manipulates them all?

Wed, 12/08/2010 - 18:15 | Link to Comment DisparityFlux
DisparityFlux's picture

Release the hounds!


Wed, 12/08/2010 - 18:20 | Link to Comment etrader
etrader's picture

No worrys Pimco has 33 Liberty Street on speed dial.

Its the new normal.

Wed, 12/08/2010 - 18:21 | Link to Comment traderjoe
traderjoe's picture

"Signs that the global economic recovery is gathering pace also pushed down Build America Bond prices"

Hahahahahahahaha. Yes, those municipal finances are recovering nicely - with CA issuing an Economic State of Emergency and Washington state calling a special session to reduce spending by $1.1 billion through this June. Welcome to the Recovery!

Wed, 12/08/2010 - 18:40 | Link to Comment midtowng
midtowng's picture

All local and state construction projects are about to come to a halt.

Exactly how is this shaky recovery supposed to move along after taking that body blow?

Wed, 12/08/2010 - 19:08 | Link to Comment NotApplicable
NotApplicable's picture

Don't forget that Illinois is not making tax payments to municipalities.

Wed, 12/08/2010 - 18:22 | Link to Comment RobotTrader
RobotTrader's picture

No doubt, next month we'll see massive outflows from bond funds and huge inflows into equities, commodities, etc.

How many months in a row have we seen equity fund outflows?

It is going to reverse sooner or later.

Wed, 12/08/2010 - 18:50 | Link to Comment Caviar Emptor
Caviar Emptor's picture

+1 Mom and Pop hiding out in bonds will get burned once again. No where to run, now here to hide. They'll get in at the top in equities too. In time for the next flash crash.

Wed, 12/08/2010 - 19:20 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

I'm sorry it just doesnt work that way. Bonds are supposed to be the safe haven, never lose place to park your money for regular folks.

If they are afraid of bonds, they aren't going to pile into stocks.

Wed, 12/08/2010 - 19:32 | Link to Comment dnarby
dnarby's picture

They cannot let the bond market collapse.

Equities will be sacrificed on the bond altar, because w/o the bond market, there is no market.

Wed, 12/08/2010 - 20:01 | Link to Comment Seasmoke
Seasmoke's picture

the bond market is the foundation of the pyramid (scam) ....and we all know what happens when the foundation becomes unstable

Wed, 12/08/2010 - 20:28 | Link to Comment Eternal Student
Eternal Student's picture

Mostly agree, except that "they" aren't in control of the Bond market. The best they can try to do is to influence it. The Bond market always has, and always will, eat Central Bankers for lunch. The U.S. is no different, but my bet is that Europe will go down first, before attention gets seriously focused on the U.S..

Wed, 12/08/2010 - 19:15 | Link to Comment HarryWanger
HarryWanger's picture

Exactly! Equities forming a platform base here and will rocket when the bond money continues to flow into the market. 

Wed, 12/08/2010 - 19:46 | Link to Comment Bearster
Bearster's picture

My money's on the side that says if bonds falter, much less collapse, the stock market does the same.


Wed, 12/08/2010 - 21:50 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea equities at an all time high compared to currency valuation, yet are just set to ROCKET all the time according to you. BOND money is the safe money...if even bonds are nothing but a casino what makes you think people will pile money into the top of the equity Ponzi? Ridiculous. Your posts are vacuous drivel.

Thu, 12/09/2010 - 06:58 | Link to Comment Quintus
Quintus's picture

"when the bond money continues to flow into the market."


Harry, you do know that money has been flowing OUT of equities for 31 consecutive weeks now, right?  If anything at all flows into equities, it hardly represents a continuation.

Wed, 12/08/2010 - 18:22 | Link to Comment johngaltfla
johngaltfla's picture



Wed, 12/08/2010 - 18:23 | Link to Comment RobotTrader
RobotTrader's picture

Whole Foods just announced that they are re-instating their 10 cent dividend.  Big deal.

Watch that stock take off tomorrow...


Wed, 12/08/2010 - 18:31 | Link to Comment traderjoe
traderjoe's picture

Can you post a chart of TLB, Coldwater Creek, and Mens Wearhouse for the recent 5-day period? 

Consumer spending? Our economy will be increasing ruled by the top 50 corporations that have tremendous domination over suppliers, landlords, etc. But as incomes continue to shrink their margins will get compressed as they compete for smaller discretionary incomes. Oh, wash, rinse, repeat the economic cycle of death. Ever see Idiocracy?

Wed, 12/08/2010 - 18:52 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Yup. MCD today (same store sales down in US), WallMart cutting staff. The game of musical chairs will play out big time next year: there will be big losers and winners since the consumer space is shrinking. Fewer firms will dominate their spaces. 

Wed, 12/08/2010 - 18:50 | Link to Comment Rick Masters
Rick Masters's picture

A whole 10 cents; I better get trading! I might be able to buy to pieces of Bazooka Joe bubble gum.

Wed, 12/08/2010 - 22:20 | Link to Comment ihedgemyhedges
ihedgemyhedges's picture

Robot, thank you for that very insightful post regarding Build America Bonds..................

Wed, 12/08/2010 - 18:28 | Link to Comment InconvenientCou...
InconvenientCounterParty's picture

Please can we have cute bears to explain why pensions will cease to exist soo?.

And why, 10 years from now all the talk about liberty (and obesity) will be a distant memory in someone's blog.

Wed, 12/08/2010 - 18:28 | Link to Comment jbc77
jbc77's picture

It's all a farce boys. We knew this though, we read Zerohedge. Nuff said really. The rubicon was crossed long ago. Prop up or blow up. How will the fed ever stop? One hell of a croner to be backed into.

Wed, 12/08/2010 - 18:30 | Link to Comment Ragnarok
Ragnarok's picture

Fed gets its wish! Print More!

Wed, 12/08/2010 - 18:34 | Link to Comment Commander Cody
Commander Cody's picture

Everyone, everywhere, except the middle class American taxpayer, gets a bailout.  I want mine now!

Wed, 12/08/2010 - 18:35 | Link to Comment whaletail
whaletail's picture

This (slight) pullback in gold and silver is a gift for those with dry powder. 

Wed, 12/08/2010 - 18:52 | Link to Comment 1100-TACTICAL-12
1100-TACTICAL-12's picture

Why did it pull back? & how far will it go? Sitting on X-Mas bonus wanting to buy.. Where is Turd F.?

Wed, 12/08/2010 - 18:59 | Link to Comment Caviar Emptor
Caviar Emptor's picture

We've entered the Twilight Zone: all asset classes need permanent support from the bureau of central planning: bonds, stocks, real estate, shadow banking, food stamps, unemployment, tax cuts. You have entered into an economy without time, space or dimension:

"There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man's fears, and the summit of his knowledge. This is the dimension of imagination. It is an area which we call... THE TWILIGHT ZONE." -Rod Serling

Wed, 12/08/2010 - 21:56 | Link to Comment AUD
AUD's picture

Some investors are saying they “may not participate in a market that won’t exist in two weeks"

Ha, but they participate in a market that doesn't actually exist now since the debt is never extinguished! They just perpetually loan gold to the government & its banking establishment. Fucking idiots.

Say Durden, call me slow since I only just rewatched Fight Club for the first time since it was released here, but surely there's potential to 'mayhem' things up a little more? Perhaps a huge sign on a highway billboard? A split second frame on a movie reel?



Wed, 12/08/2010 - 19:12 | Link to Comment swanpoint
swanpoint's picture

no issue here. the fed can just add munis to the pomo. when corporate bonds go, add them too.

Wed, 12/08/2010 - 19:16 | Link to Comment GlassHammer
GlassHammer's picture

Can't we just find some slow witted group of investors that are willing to part with large sums of cash for little to no return?

.....Oh right that would be the U.S. taxpayers. 

Dang it!

Wed, 12/08/2010 - 19:30 | Link to Comment Bruce Krasting
Bruce Krasting's picture

The chart shows a backup in yield of 85bp in just two months. This analogous to a 15% drop in the S%P. This is a big deal.

If the 85 bp were permanant and spread to all maturities/issuers it would translate to a cost to municipals of $25b a year. Big bucks for states that are already up against it. Most of this hits NY, Cali and Ill.

What's the tipping point on this? We shall see. We are closer than you might think.


Wed, 12/08/2010 - 19:56 | Link to Comment mikla
mikla's picture

Wed, 12/08/2010 - 19:31 | Link to Comment virgilcaine
virgilcaine's picture

Bond investors are just selling to the willing Fed at these historic prices, it's like a going out of business sale. 

Wed, 12/08/2010 - 19:32 | Link to Comment Wheatman
Wheatman's picture

How far away are we from the tipping point with muni and govt debt, whereby any announcment to "print" will actually cause rates to increase even more, NOT fall. Once that tipping point is reached, then the debt markets will implode, closely followed by the stock market and Uncle Sam himself. Maybe 6 months? Tyler's long the 30 year bond trade is well under water, and I don't know how he can live with himself with his ridiculous bond bull scenario, REGARDLESS OF QE4, 5, 6 OR 7.

Wed, 12/08/2010 - 19:38 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Oh now they're saying if don't get the tax break extensions we will surely go into recession.

Try me.

Wed, 12/08/2010 - 19:48 | Link to Comment virgilcaine
virgilcaine's picture

TD the  yield curve is steepening, not flattening.  Flat would be 4% on the short term also.  This could keep Bernank awake at night if  the trend continues.


Wed, 12/08/2010 - 20:42 | Link to Comment Astute Investor
Astute Investor's picture

With respect to yield curve flattening, I believe Tyler has been referring to the action in 10s vs. 30s where the spread has declined from 142 bps on 11/3/10 (BB announces QE2) to 119 bps at today's close.

Wed, 12/08/2010 - 21:55 | Link to Comment unum mountaineer
unum mountaineer's picture

he's gonna develop ulcers if this keeps up..but you know, that's what happens when you are 100% certain...

Wed, 12/08/2010 - 19:55 | Link to Comment Jeffersonian
Jeffersonian's picture

I love how a TEMPORARY program with a clear end date when it was established, surprises "the market" when the end date actually comes. Now they do some fear mongering and manipulate the government into renewing an inefficient, emergency program. This country is doomed.

Wed, 12/08/2010 - 21:58 | Link to Comment SheepDog-One
SheepDog-One's picture

Yea it ALL now depends on extending unemployment bennies which is really just welfare at this point, and continuing the free bonds or else the states implode. BTW the 99'ers that have run out will not get further unemployment according to a CNBC article anyway. Theyre reached maximum retard, and everyone knows it.

Thu, 12/09/2010 - 01:44 | Link to Comment StychoKiller
StychoKiller's picture

What?!  No anti-riot payments?  Cue the Pitchforks...

Wed, 12/08/2010 - 19:56 | Link to Comment blindman
blindman's picture


Grant McLennan - Lighting Fires


Wed, 12/08/2010 - 20:02 | Link to Comment virgilcaine
virgilcaine's picture

Dream On..everyones got their dues to pay.

Wed, 12/08/2010 - 20:22 | Link to Comment max2205
max2205's picture


Wed, 12/08/2010 - 20:43 | Link to Comment Buck Johnson
Buck Johnson's picture

They are getting out while they can, because they know that this charade of an economy can't go on forever.

Wed, 12/08/2010 - 21:21 | Link to Comment Village Idiot
Village Idiot's picture

...and fuck bab's

Wed, 12/08/2010 - 22:10 | Link to Comment freon guy
freon guy's picture

Time to short treasuries?  Long TBF?

Wed, 12/08/2010 - 23:09 | Link to Comment IrrationalMan
IrrationalMan's picture

I think that a QE program around munis would be very difficult to even impliment, ignoring the lack of gain from doing it.  Treasuries are easy to do QE on from the aspect that they are not that many CUSIP's and the people holding them are more institutional investors, and other that have large groups of them.  For munis there are tons of cusips and are a lot more spread out in terms them being bought by a lot of upper class and other retail investors.  This will make it difficult for the Fed to purchase 40 billion a day of this shit as the issue sizes are small and they would need page after page of cusips that they would accept.  also the primary dealers don't want to bother calling people and trying to rangle away 100,000 in face value at a time for bonds.  Too time consuming.

All in all should be interesting to see how they handle this clusterfuck.

Wed, 12/08/2010 - 23:25 | Link to Comment omer10
omer10's picture

Relax people. U are making the same panic as when qe2 is announced about dollor going to 0. Dxy is actually stronger now. This bond yields going up is the way it should be. Should fed buy the bonds from chinese at 2 % yields instead and itself need a bailout in months? Retail investors should have known better to buy 10ys at 2.5%. but how much did they really? Yields were this high onky this june. Fi investors were feeling smug for winning big in a safe investment as yield only went down. There is no free lunch. Plus it would be more dangereous later if this bond buuble sucked in more money.And you the pm crowd feel happy u can get ur gold silver cheaper

Thu, 12/09/2010 - 00:15 | Link to Comment trav7777
trav7777's picture

The Fed is printing the coupon anyhow, so why not get a lower price to get more mileage out of QE2? I mean, maybe they did back of the envelope and figured that they could stretch the print further. They are floating the deficit anyhow

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