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Charting The Fed's Monetization Vs Treasury Issuance Mismatch
The long-end of the curve has recently suffered a major whammy: first, contrary to expectations, the FRBNY announced that it would do just 6% of the total buybacks in the 10-17/17-30 Year area; and second, the overall size of the announced monthly monetizations ($75 billion excluding MBS reinvestments) ended up being far less than the $100 billion hoped for (again excluding reinvestments), although the market has conveniently so far ignored this major surprise. Yet what is interesting is that despite the presumed disappointment focusing on the long-end of the curve, the chart below from Morgan Stanley shows just why the long-end is about to experience a fresh surge in buying interest, undoing all the positive work the Fed has done on behalf of the banks by steepening the curve, and leading to yet more flattening. Another observation is that, as we have said many time before, the Fed's existing plan leaves just under $250 billion in the form of a demand gap that has to be closed by foreign central banks - and once QE 2.1 or greater is announced, America's will become completely independent of foreign monetary retaliation: even if foreigners go on strike, and like US stock investors, refuse to touch the market, the Fed will still monetize every single cent of deficit spend funding. In one brilliant stroke, Bernanke made America completely impervious to international retaliation.
Some narrative from Jim Caron on the above chart:
- Size of $850-900 billion Treasury debt through end-2Q ($110 billion per month, 8-month horizon)
- QE2 @ November FOMC: $600 billion through end-2Q ($75 billion per month, 8-month horizon)
- SOMA reinvestment @ August FOMC: $250-300 billion through end-2Q ($30-35 billion per month, indefinite horizon)
- SOMA holdings per security will be allowed to rise above the 35% threshold but only in modest increments
- Fed purchases on track to absorb 100% of the monthly Treasury issuance (F2011 total of $1.15 trillion)
- Largest distribution mismatch between Treasury issuance and Fed purchases is in the 7-10y sector
The two jarring observations from the chart top right, is that the Fed will monetize 50% more in the 7-10 Y bucket than the Treasury will issue. Expect for the right side of the belly to be the next to see its yield plunge. Additionally, even with only 7% of purchases in the 10-30Y bucket, the Fed will still gobble up about 80% of the total issuance. And with the 30 Y the only real source of yield left, we expect fund flush with case to begin front-running the next Fed monetization event by buying up precisely this sector, which will be the one most focused on by the Fed should it really lose control over LT inflation expectations as determined by 30 Y yield indications and forward swap spreads (contrary to TIPS curves).
Indicatively, here is how the various Fed purchases have looked like in the past by bucket. We certainly expect the Fed to revert to its historic stance of
acquiring more 30 Years than 10 Years as soon as June of next year. Which means let the frontrunning begin.
- 2009 duration of purchases: 5.24 years
- 2010 YTD duration of purchases: 5.33 years
- 2010/11 duration of purchases: 5-6 years (Fed has some room to extend out the curve from the current purchasing pace – mainly via the 7-10y sector which the Fed now projects to receive 23% of the purchases (vs. 11% and 4% in 2009 and 2010, respectively)
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Imperialistic indeed...
The whole point of QE2 is to fund the borrowing of the government. The decision to do it through the POMO and SOMA as opposed to monetization of excess issuance were likely political decisions by the Obama administration to keep the bankers happy and perpetuate the illusion of solvency in the state and other pension pools.
The whole point of QE2 is to allow Ben to live out his academic wet dream of proving that he would have averted the Great Depression had he been in charge back then.
Oh to be arrogant, and in the right place at the right time in history. He must be allowed to fulfill is "density"
In addition to which: unemployment fund of State of Calif. (world's 8th largest economy) just ran out of money, other states getting close. Benny is going to run out of paper and ink before this is over. In fact, that may just do it...can't buy more paper and ink with a $ whose value = 0.
This post misses the fact that this Fed QE2 is "hot money". The multiplier effect will actually generate a lot more inflation and concomitant tax receipts than the notional value of the purchases. Jupiter
Made US gov's capacity for deficit spending independent of other nations' treasury purchases, arguably without as large a risk of increased rates on rollovers into an extended future, okay. But "impervious to international retaliation"? I'm missing that piece.
Now how does this end well for us? I am confused. I thought TARP, QE1, QE lite, and QE2 are all supposed to put liquidity in the markets. How come the need for the results these charts show? Seems like this never worked from the start. Whereas Hank Paulsen was saying we needed TARP to "keep the dollar value up" and now Benny with QE 1-2 is doing the opposite.
Wouldn't it have been better to NOT do the TARP to strengthen the damn dollar ahd have an extra $785 BILLION, then to have Benny continue on his dollar rampage?
It seems to me that what they teach at the Ivy League schools is LYING and SMOOZING. It looks like all the IVY LEAGUE schools teach is how to screw the American Taxpayer with archaic and misguided theory.
Screwing the US taxpayer? Wake up.
Who would have bought the treasuries? The Chinese are quite obviously no longer interested, so outside of "The UK" and "Caribbean Islands" (both go with a giant "yeah right"), who could possibly absorb this magnitude of debt?
http://www.ustreas.gov/tic/mfh.txt
The UK have added $330bn over the past year, while struggling with a 13% deficit, not counting unfunded liabilities (of which there are many) - YEAH RIGHT.
Over the past year, foreigners have only absorbed $700bn of newly issued treasuries, out of a $1.7tn deficit.
Does anyone think we would have beenbetter off if the Fed bought $600 Billion in gold???
They have lots of gold. They just don't want to talk about it much.
... in a Fort Knox vault which was not audited since 1970? Open your eyes...
i believe the audit was in the '50's under ike.
It's not the Fed's Gold.
It's Treasury's Gold.
Auditing the Fed may not do anything with regard to auditing Treasury's gold holdings at Fort Knox, West Point and other assorted locations.
excellent point. some is under the ny fed is it not (other countries' too but some u.s.)?
other countries?
I think it's actually held hostage by the banksters in NY. There is no sovereignty in some foreign country holding your country's gold.
where is the German gold stored which is in custody in the US?
Fort Knox is basically sealed from view for anyone (including supply forces), but I know West Point has no gold anymore. The old facility they said used to have near the store area is no longer used or protected. In fact, the protection force that used to guard WP was deployed after 01 overseas and has not been replaced to any large degree.
In short, if the us has large amounts of gold, which I would doubt due to how the gov likes to use speculation to increase it's perceived competence, my guess is that would be in an undeclared facility and not at Knox or WP. I mean Knox is so old and decrepit that you would think it would be maintained better if it contained the vast amounts of reserve gold people think it has.
My guess is the US Treasury gold is under Denver Int'l airport.
Anybody else care to speculate?
Cheers,
Beef
Retro gold or DIET - artificially sweetened with TUNGSTEN?
HPD, you have more gold in your teeth than there is in Fort Knox. What? No dental gold? Lucky you...safe from the midnight knock.
Depends on the end game. If it were to institute a reasonable economic system after the collapse, sure. If it were merely to have more assets to run away with when they're done destroying America, not so much. Either way, the question presupposes the Fed should do something, and further, that it should exist. No thanks.
Kinda OT: http://www.zerohedge.com/forum/fight-club-and-twitter-lets-go
Deserves some serious consideration, imo. It has my vote. Very interesting system for driving crutial issues to critical mass.
Thanks. I can't think of anything easier that has the potential to reach a large number of people that really need to be reached. It literally takes only one minute to make an account, and from there we can have lots of fun.
A really good idea.
Were doomed. Ya hear that Elizabeth? Im coming to join ya. Fuck this shit. Paradise in Heaven is sounding better to me with every post i read. I hope they dont pull this shit up there.
I agree......We are doomed. I'm going out & buying a years supply of canned food....at least I'll last until the expiration dates over.
Doomed? If that means there will be no recovery to former "glory" then I'll agree.
This one chart tells the reason why:
http://panzner.typepad.com/.a/6a00d83451591e69e20133f59d161f970b-pi
Well, sure. The Fed can make our deficits "independent" of foreign Treasury purchases. In fact, why do we still have a national debt? Can't the Fed simply buy it now through monetization? When you reach the point where the lunacy is only acceptable because it is quantitatively different from a qualitatively insane strategy, you know the end is coming. The Fed is trying to "titrate" the money supply. Print just enough that it doesn't look totally crazy, that it isn't just a case of the Treasury issuing paper and the Fed (which holds the Treasury's bank account) printing paper to buy it and calling it "debt." This is in fact what it is doing, using the Primary Dealers as shell #3. These slight complications are supposed to take our eye off of what's really happening. But it's the same as Confederate money. The Fed is just issuing scrip. An honest way to do it is for Congress to "appropriate" money and for the Fed to print it, with no accounting or "debt" created. We're there, we just don't want to admit it.
Probably the first article suggesting the reality, that the FED is good for the US and that Bernanke has only worked from the beginning with the US best interests at heart.
So back to what I stated years ago now: the only foreigners that could do something are the ones at the bottom, those providing USD with real value by yielding their resources against USDs. Wont happen in any way.
So the US can buy for free anything they want and need.
Dont tell it is not good for the US.
I'd been considering that maybe QE2 was a covert effort to force a rebalance of the world economy, especially by forcing China to free its currency. I could almost support something like that, however there are two huge dangers: this could be seen as warfare, and unintended consequences could do far more damage to us. As with any war, it is very dangerous course, and the end never looks anything like what we imagined.
Still Benny has been Reactive Man for the last 3 years, so I doubt he has the kind of bold intitiative to do something like that. Then again maybe the China revaluation bill was legal cover for the Fed to conduct this attack on the world. Seems a more methodical and thoughful approach might be more effective though than one US agency taking matters into their own hands (another reason I have my doubts QE2 is anything more than what has been presented as).
I reckon QE2 was about 2 things - creating a buyer for an unprecedented amount of treasuries, and to provide a potential backdoor bailout for the banks (considering foreclosuregate).
I guess time will tell.
Yes. Facinating. That is what we all would like to believe, but can't because we simply do not trust, do not have the confidence.
Does this imply a different ZH perspective?
No it doesn't. Holders of USD will soon find out that it cost them 60-90% of their purchasing power to bail out the banksters and help to continue to pay out healthy and inflation hedged wall street bonuses. Congrats and good luck!
Rudolph von Havenstein also made Weimar Germany completely self-reliant vis-a-vis funding. He certainly also had the best interests of the country in mind. Final outcome was not too pretty.
Sounds like big circle jerk. Robbing Peter to pay Paul. Who is left holding the bag on this? Perhaps a discussion of sterilization would be in order now. So now instead of being beholding to China and/or Japan, we will be beholding to the FED. Hmm. As their buildings burn one day, the taste in the mouths of the rioters will be that much sweeter.
Too bad for Pam. She has nothing to steal and no one to steal for her. Just the realization that she missed the boat!
Watching this all unfold. Cannot wait for J6P to wake from their 97 year sleepy nap.
This reminds me of a song as a kid.
as originally done by Mission ofBurma (written by C. Conley)
Once I had my heroes
Once I had my dreams
But all of that is changed now
Gets twisted inside out
The truth is not that comfortable, no
No
And Mother taught us patience
The virtues of restraint
And Father taught us boundaries
In honor we must go
The vanity will colour us, yeah
That's when I reach for my revolver
That's when it all gets blown away
That's when I reach for my revolver
That feeling passes by this way
A friend of mine once told me
His one and only aim
To build a giant castle
And in it sign his name
The silence whispers me and you in chains ???
That's when I reach for my revolver
That's when it all gets blown away
That's when I reach for my revolver
That feeling passes by this way
Yeah
And now the sky is empty
But that is nothing new
The dead eyes look upon us
And they tell me we're nothing but things ???
That's when I reach for my revolver (but things)
That's when I reach for my revolver
That's when I reach for my revolver
That's when I reach for my revolver
That's when I reach for my revolver
That's when I reach for my revolver
http://www.youtube.com/watch?v=H6LcGDCbyI8&feature=related
Dear Obama,
Keep pushing your agenda. Its hard enough to manage those who already know. Imagine if everyone woke at the same time to witness your fraudulent activities?
Sincerely,
US Taxpayer
Just buy everything-stocks, bonds, commodities, it will all go up in value. Yes the Bernanke superput extends to all asset classes This guy is making me rich!!???
Yep, Ben is a genius. How is your purchasing power vs stock market paper wealth computing?
http://quotes.ino.com/chart/index.html?s=NYBOT_DX&t=&a=&w=&v=d6
Just wait to the Iran Black Swan vs. the China Black Swan hits the market.
It is just a matter of time. All in Yet ???
Where are the C U N T brothers now? Silver bitches?
Don't worry. The Fed has everything under control.
Nothing is bad enough that Uncle Gorilla cannot fix with various meddling and schemes.
They just recovered from the biggest wipeout in recent financial history as documented by Rasputin here:
One-hundred percent return in twenty short months.
Rasputin - Sun, Nov 7, 2010 - 10:19 AM
That's how much the PigMen-following speculators of the world have profited in their
totally-passive, mostly-non-dividend-paying stock portfolios since Uncle
Thug and the Fed stepped in and essentially took over the entire
economy and financial system during March, 2009.
That's right bloody bears:
Twenty months. One hundred percent profit. For doing NOTHING but trusting that TPTB will take care of them.
And at ONE-HALF the tax rate that gold bugs have to pay on their whip and spoon speculations.
Not to mention that the goons also:
1. Stopped the McMansion/McMortgage collapse dead in its tracks
2. Took over BOTH Chrysler and GM
3. Bailed out AIG, Goldman Sachs, Morgan Stanley, Bank of America, JPM and all the other, failed, Wall Street gamblers.
4. Oops, Ras almost forgot to mention that "little detail" of the
Thugs effectively nationalizing Fannie, Freddie and the FHLBs. Another
SIX TRILLION fiatsco commitment on their part.
5. Hmmmm, what else? Oh, yeah. The FOUR TRILLION fiatsco backstop
that the Fed put in place to stop the money market collapse that was
taking place in September, 2008.
Heh, and people wonder why Ras bows down and polishes the shoes of the Thugs in Charge?
Well, wonder no more bloody bear friends. Because the facts are irrefutable.
And, while all this was taking place, the U.S. fiatsco actually
GAINED in value--as measured by the index--from the 72ish range, to the
76.5ish range today.
(Ras Conclusion): One would have to be clinically insane to
try to go up against the Thugs in Charge. These guys are brutally
efficient at imposing their wills on currencies/markets/sectors, and
were fully willing--and able--to take over the entire financial system
in order to keep their Monetary Monopoly Ponzi scheme going.
And, after thirty years of ranting against them, railing for change
and resisting the tide, Ras has finally thrown in the towel.
In fact, next week he will possibly start flipping some electronic
digits around in his online brokerage account, just to be a part of the
hoopla.
If you can't beat 'em, might as well join them.
RAS is throwing in the towel at precisely the wrong moment, but his sentiment is well understood....
"Precisely the wrong moment", how so?
You can throw out your technical analysis texts where Ben is taking us, they won't do you any good. If money beocmes worthless, there really is no limit on how high the market will go (not that I can predict where it will go).
One has to concede that the banksters came out on top, after it appeared in 2008 they would be buried in the rubble of a financial system collpase.
They definitely pulled a rabbit out of the hat in the fall of 08, but just barely. We were only hours away from collapse. Investors now know that the fed guarantees, put in place to prevent the collapse, were a ruse to stop the outflows...No way in hell that the fed could insure "everything".The market is a gamble at this point, one flash crash away from reality.Fed pumping becoming less effective with each pump. PM's and Ag land are my bets at this juncture...
An ex-girlfriend of mine worked in the city at the time, and she said they turned up for work, literally not knowing if they still had a job.
Then Lehman fell.
Wouldn't surprise me at all if that happens again, bigger though and unstoppable...
While I pretty much agree with you, you evaded the question as to why this is precisely the wrong moment. You could have said almost the same thing a few months ago - so why is now the wrong moment?
Because its fairly obvious now that the only thing keeping the system running now is POMO and QE II. Also quite obvious that QE is the only "solution" as far as the fed is concerned, which is only throwing money down a hole when you have the structural problems we have . As I see it, we are quite incapable of dealing with and solving our basic problems. Energy is another example. We are importing 9 million barrels of oil a day. Thats a built in trade deficit of $23 billion a month. Fraud is rampant, our currency is fiat, unemployment insurance is soon to be infinite and 43 million are on foodstamps. Mrs Obama , while serving food to the homeless, is having her picture taken by a homeless guy with a Blackberry and moral hazard has been thrown out the window. Finally, Mako's fucking equation is lurking underneath it all. Thats why it is precisely the wrong moment!
Pennies, meet steamroller.
I like the cut of Rasputin's Jib, though I think he gives the UST people to much credit.
The biggest fools of all are the rest of the world for accepting chits as payment for their toil. International Reserve Assets, a large part of which are USD denominated, hit $9 trillion last week, yes that's right, 9 trillion!
The pure numbers definitely support Ras' conclusion, see
http://stockcharts.com/h-sc/ui?c=$INDU:$GOLD,uu[h,a]waclyyay[pb40!f][vc60][iue6,12,9!lj[$spx]]
Dow/Gold is above the minimum achieved in spring 09. But that chart does not look bullish to me, more undecided with a bearish undertone. So far, Ras' conclusion makes sense. However, the assumption that the Fed will keep control from here on seems not supported by facts. The economy is depressed and oil, food and commodities are expensive and seeming to get more expensive. Are there any fundamentals supporting stocks beside the printing press?
http://stockcharts.com/h-sc/ui?c=$CCI,uu[h,a]waclyyay[pb40!f][vc60][iue6,12,9!lj[$spx]]
In the seventies gold moved up when stocks were flat or down; this time it might be bonds instead of stocks.
Here comes the end of the dollar folks, read this one. With contributions buy Jim O’Neill(GS), David Vines, John Nugee and many others...anybody looking for a longterm career as a currency trader might be dissapointed.
http://www.chathamhouse.org.uk/research/economics/papers/view/-/id/844/
It's a payment for reappointment.
And a compromise:
Low yield: banks die
High yield: government dies
This way he controls the yields and channels the money to the banks to keep them alive. Temporarily, it is figured out soon.
ZIRP appears to solve the problems you cite.
I doubt. ZIRP is a hand out from out of the blue, a push on the string.
Zombies need fresh blood. Private business has to be sucked in (and to be sucked dry).
I thought some time why the FEd did this move. Now everything is clear to me.
Independence from China until everything is cleared.
The next 6 months China will get on the cooking grate and it will get nasty.
Buy gold !
Curiously, I was blocked from this site right after the market rallied on the Fed decision. I'm just curious what I said for that to happen.
Other than being dead right on what the reaction to QE2 would be, I don't recall being disrespectful.
Other than commentating on the state of the auto industry after a week in Detroit, I don't recall calling anyone terrible names.
Does having opposing viewpoints automatically get you blocked? I ask that in all sincerity since I would like to continue discussions here but want to know the playing field to avoid another few days of blocking.
Doubt very seriously that you were blocked, more than likely you tried to post during one of the several maintenance periods ZH has had recently....
No, I couldn't log in for several days. Tried each day. I even created another account to see if that account could post and it did. But I still couldn't post. It told me that my account was blocked.
Oh well, it works now, so whatever the case, it's good to be back.
Why don't you just write it up to a glitch or a mistake? Why look for conspiracies or personal failings? It's not all about you.
Not curiously you are like the majority of sheeple and instead of noting the time that you couldn't access ZH and checking to see how many IF ANY posts were made during that time frame by others here you chose to wine about it instead - after the fact and without facts. Bor-ring.
This isn't a Govt. site. You aren't entitled to glitch free bitching. Do you say thanks every day your able to access ZH without problems? Maybe you should check your contract and see if you are due a refund LOL.
Harry, if Johny Bravo and Mako don't get blocked, I don't see why anyone would block you. This is a place for verbal pugilism. Everyone is welcomed to fight.
As per markets going up after QE2 announcement, elementary my dear Harry. It is what the market has been doing. The Fed is the biggest put in the market so there is no down risk. I'm a bit surprised that the PMs have not corrected yet. Expected some correction (10-15%) based on the small amount of QE against expected numbers. Still, should see a correction before the end of the year as some of the funds move back into the market on the news.
I'm here everyday, and I remember your comments. I don't think you did anything to be blocked. Your opinion might not have been popular, but hey, this is ZH. We see that all the time.
I too had a problem getting on about that time. I assumed it was a traffic jam to get the latest news from the Fed statement and see what the ZH family's reaction would be.
In one brilliant stroke, Bernanke made America completely impervious to international retaliation.
Surely, a corollary of this is that it also provides foreign holders a relatively risk free and painless exit from their bond and currency holdings
"In one brilliant stroke, Bernanke made America completely impervious to international retaliation."
Perhaps America, but not Americans that need commodities that are rising in dollars to survive.
Now we observe how Ben can control all the commodity markets at once....or not.
Ok, I'm confused. Lets say that the Fed monetizes all the debt. Not just future bonds, but all internationally held bonds as well. Chinese held, Japanese, British. The Fed is actively trying to devalue the dollar. So are all other major markets. So in the race to the bottom, wouldn't this result in a dollar index that is relatively stable as compared to all other fiat? Of course, PMs would go to the moon, but wouldn't oil and all other commodities retain their relative dollar value if oil does not increase? Yes, the banksters would own all US debt. But they already own the US government so what is the difference? Fiat only has value in relation to other fiats and real assets. So as long as the oil/dollar ratio remains stable (due to exchange rates against other fiats) no immediate negative impact. Please feel free to junk me if I am loosing my mind (small blue letters at the bottom of this post for the newbies), but at least discuss your point.
I want to buy TBT so badly - it's feels like a moral imperative to me - to bet on reality. I can't though, because the treasuries are not going to see reality so long as the Fed remains able to do this. How long does it take for people to realize we are buying our own debt with money we print? It's Wiley Coyote 50 yards beyond the cliff edge. The charade will continue until people start to look down.
Agreed, we are lucky to have this resource.
This ends in tears just as soon as someone
somewhere demands higher interest rates
and we are off to the races. Who is next the
Creditanstalt?
"Who is next Creditanstalt" vs. "In one brilliant stroke, B. made America impervious to international retaliation". Don't think so, TD. This is what comes of looking at complex economic phenomena via #s only. Think psychological contagion hyper-accelerated (eg, HFT) by high tech. When China, Japan, Saudis, others dump their $$$, T-bills, other US-related toxic crap, it will - thanks not only to financial interconnections but to the INTERNET - flash back into our economy at literally, the speed of light. There won't even be time to run the banks.
Tyler you write: "We certainly expect the Fed to revert to its historic stance of acquiring more 30 Years than 10 Years as soon as June of next year."
I comment: You are totally incorrect. The Fed will be buying litte if any 30 Year Government Bonds.
In my article Waves Of Carry Trade Investing And US Central Bank Easing Have Caused The Beast Of Global Corporatism To Rise From The Sea Of Humanity I wrote:
Global bankers and currency traders have borrowed the Dollar, $USD, while investing in higher dividend paying currencies pocketing the differences.
Their bet was that the Federal Reserve would come out with ZIRP and QE 2 to support mortgage-backed securities, MBB, and short duration US Government debt, IEI, from a deflationary collapse. They were correct in their expectations, as Ben Bernanke announced a plan to literally print money out of thin air to the tune of $600 Billion to $1 Trillion Dollars. The bet on the dollar carry trade has been profitable for the last six months as stocks, VT, and Bonds, BND, have bloated the global financial bubble out to fantastic proportions.
The week of November 5, 2010, finished with the 30:10 US Sovereign Debt yield curve, $TYX:$TNX, soaring to close at its highest level ever value of 1.627.
The strong rise in the yield curve drew financial companies higher; these included American Express, AXP, Bank of America, BAC, Banks, KBE, Fortress Investment Group, FIG, Lazard, LAZ, Mortgage Finance, KME, Nasdaq Community Banks, QABA, and the Leveraged Buyouts, that is the LBOs, PSP
I believe the yield curve will fall lower, only to rise ever higher, as the longer out interest rate, the interest rate on the US 30 year bond, $TYX, soars relative to the Interest Rate on the US Ten Year Note, $TNX.
This will cause a strong loss of value in the Zeroes, ZROZ, and the ten to twenty year US government bonds, TLT.
Risk appetite will change to risk aversion as the bond vigilantes, call the longer out interest rate, that is the Interest Rate on the 30 Year US Government bond, $TYX, higher, and as attention focuses on the European Sovereign Debt Credit Default Swaps, over banking issues in Ireland, EIRL, and other European periphery countries, such as Portugal, Italy, EWI, Greece, and Spain, EWP.
The rising interest rate, as well as concern over the value of bonds held at the European Financial Institutions, EUFN, will cause Global Government Bonds, that is the world’s sovereign debt, BWX, and world corporation bonds, PICB, to fall in value.
http://theyenguy.wordpress.com/2010/11/06/waves-of-carry-trade-investing-have-caused-the-beast-of-global-corporatism-to-rise-from-the-sea-of-humanity-2/
My final comment here Tyler, is that if the Fed, bought on the long end like you suggest they would be walking right into a huge shredder -- they would be walking into a shot gun blast.
They will choose instead to buy into the short end where they will be walking into a derringer blast.
Seriously, this entire financial system reminds me of online poker where every deal is designed to maximize the action. And only thieves make the money in the end.
Pretty sure as the 10-30 maturities' yields come unhinged from the shorter dated bills
the FED will be forced to purchase 10yr+ maturities because as you say the risk of low yield 30yrs is not worth it for money managers or anyone. If the Fed stays on the sideline w.r.t 10yr+ then they risk a dramatic move which could put trillions of IR swaps underwater, furthermore if the long end of the curve comes unhinged it will be obvious that the Fed has lost control and we have a short period before short term interest rates rise in a similiar fashion. This is the problem; the Fed believes they are walking into a derringer blast and based on their ceteris paribus world they are. However the system is beyond complex and if anything disrupts their version of the next 12-18 months all bets are off.
The economy is bad in America
because worried people aren't spending money here
so the Fed boosts funding
which worries people about inflation so
they send their money overseas
making the economy bad in America so
the Fed boosts spending ...
Flatten the curve. So if the 30 year bond yield goes down 1% from 4.12%, then the first order estimate of price goes up 30%, but taking onto account coupons and compounding, the price goes up only 19%. I used to think that I would short the bond, but long looks better now.
Agreed.
You do awesome work.
Only $1.15 tril of net issuance in FY2011? Apparently Wall Street is still trying its best to pretend to believe the official fiscal forecasts.
Perhaps Bernanke has now set the stage for the Usa engaging a commerce war against China?
Could someone please explain to me how the 30 year bond can rally (flat cureve) into June next year, when we are having rampant commodity inflation about to break out into manufacturing costs and inflationary expectations? Am I missing something Tyler, becuase not even bernanke can stop inflationary expectations while printing money. Are you living in 1984 Tyler, because your thematic obsessions are in total contradiction?
My long term indicators continue to warn of USD strength and EURO weakness.
http://stockmarket618.wordpress.com