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Charting The Indrect Bidder Hit Ratio After Today's 100% Result, And Anticipating A Surge In Brand New SFP Issuance
Today's 4 week Bill auction was unique in that the hit ratio for the Indirect Bid hit a record (and an inability to go any higher) at 100%. We have charted the hit ratio over the past 3 months, where aside from the window dressing auction from December 29, the average ratio has been at 68% (69% including that particular 97% hit ratio auction).
The implications from this result: the Indirect bidders put the greatest amount of 0.000% or as close to preliminary bids as possible (remember, this means bidding at the highest actual bond price), followed by directs and primary dealers as we approached the 0.055% stop out to fill the $31 billion reverse dutch auction. Yet the hit ratio has never been 100% before (or at least not according to our data). This means that indirects are not price fishing, trying to jigger the auction with low ball bids: they are simply reducing their absolute nominal exposure to the Bill space, further confirming the TIC data which showed China is now happy to let its Bills expire without rolling . We expect an increasing amount of 100% hit ratio Indirect bids in Bill auctions in the future, as the full amount of Bills tendered progressively declines, forcing Primary dealers to take down 80% or more of all future Bill auctions.
And in other news, now that we can stop all pretense about fiscal responsibility courtesy of the just increased debt ceiling, the Treasury just announced that it is increasing the balance of its Supplmentary Financial Program to $200 billion, which will be promptly filled by 8 sales of $25 billion 56-day Bills over the next 8 weeks. The SFP program, which was previously unwound to a mere $5 billion, will now be used to raise an incremental $195 billion in debt to fund the burgeoning deficit. A Treasury official was quoted as saying: "We're committed to working with the Federal Reserve to ensure they have the flexibility to manage their balance sheet." Since the Fed has the printer, we are committed to believing that whatever the Fed does will be in the dollar's best interest. The beatings to increase morale, as well as the 8 SFP sales, will commence promptly tomorrow and continue until mid-April.
This SFP news is relevant because today's Indirect Hit Ratio demonstrates that the "sales" of $195 billion in new SFP bills will merely go to Primary Dealers and whoever the increasingly less mysterious Direct Bidder is, as Indirects phase out all Bill interest altogether.
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Pay no attention to the man behind the curtain, in his vomit-stained designer dark blue bathrobe, pulling all of the levers. Whooopsie, bathrobe just slipped off. Not pretty. Emperor, is that you? Too much $150/bottle champagne at the Governors' dinner the other night?
Bona fide investigative journalism. CNBC sometimes mentions this as a blurb, then the pundits laugh about it. I have seen them change headlines from "Failed Auction" to "Weak Auction".
The ave is 69%.....ah boy. 69 is a number for balance...yin yang my ass! The Fed is 100% pure evil. Writers note; numerology is in their everything. If they did not show us what they were doing, they would not derive any power from it. Remember, the VAMPIRE must be welcomed.
Tyler Durden to win a Pulitzer, Brad Pitt hoping to accept.
Could you tease this out a bit more for those of us who are less auction savvy? How does a 100% indirect takedown (69% balance) imply foreign demand weakness? What are the larger implications of higher percentages of foreign takedown allotted at 0.000%?
Tyler's explanation was too much trees and not enough forest.
The bond market is indefinitely complicated due to secrecy, but I will do my best to share my thoughts. To start remember we have recently learned that China is not rolling their bonds. So the largest purchaser is no longer purchasing, in theory (maybe through Britain). So if the largest bidder stepped away, why on earth is the the hit ratio for the Indirect Bid 100%? logic says that the other indirect bidders would be "price jiggering", trying to get some return (zero percent was what they were taking). The 100% does not imply weakness, it implies the opposite, and this is the disconcerting part. And the implication of 0% is that they have control. Personally, I think they are having a boner contest, and they just wanted to flex nuts. So this piece of the puzzle tells me something is up. Thankfully TD et al give me the pieces, so all I do is having a good time completing the picture. hope that helps.
There will never be a voluntary audit of the Fed.
Anybody for an involuntary one? By men with badges and guns?
"Badges? We don't have no badges. We don't need no stinking badges!"
+1 LOL
is this an F U messege to China?
Not the first time we have put our finger in their chest.
This is a very helpful explanation; thank you Tyler.
My, I can see from your intros today that you are feeling rather witty.....
Dry Humor is the seldom-mentioned Fifth Horseman of the Apocalypse.
http://3.bp.blogspot.com/_PuZoLkvmBbc/SWwQYphWe5I/AAAAAAAACE8/kpo5v8IYjUA/s320/Cowboy+Gil.jpg
"And the poor souls remaining will feel the lash of the Horseman's rapier tongue, and lo, they will be stitched in the sides, and their asses will be laughethed off."
- Revolutions 4:20
I was about to post in the last article when it was reported here on ZH regarding the auction resutls that I have never in 20+ years seen a 100% indirect bid takedown. Just goes to show how the trouble that has been brewing for a year, and has been passed off as normal, is not so normal, and the chickens are about to come home to roost. Can you say DOW 500 ???????
great post (with a nice chart).
Transparently failed auctions may come at any time and they are coming.
Some things will be automatic when they occur.
Deficit block currencies - $, Yen, Pound, euro - will be abandoned.
Deficit block stockmarkets will be adandoned.
Semper fi.
Get gold.
Everyone who is free rushed in Gold.
The bitches must swallow UST.
Once TD wins a Pulitzer,I will stop reading ZH...
DXY liked the auction!
Ok, for we dunces, some undisclosed indirect bidder bought 100% of what he/she/it could at 0.00% to sop up as much available as possible and therefore hopefully prop-up demand in an effort to keep the interest rate paid as low as possible?
If I am at all correct with that layman view, can anyone tell me what a failed auction looks like?
I believe it looks something like this:
http://www.youtube.com/watch?v=H1sS1TmXF38
except on a much larger scale
I want to understand the significance of this but just don't understand bonds and bond auctions. I am going to have to go and do some background study to make sense of this info.
The auction results are surprising indeed.
This is starting to look like 'a money machine.'
http://jessescrossroadscafe.blogspot.com/2010/02/treasury-to-resume-monetization-of-feds.html
I could be mistaken, but I have not figured out where yet.
This is the first time that I have felt that hyperinflation is a possibility, even a remote one.
"This is the first time that I have felt that hyperinflation is a possibility, even a remote one."
I was thinking the same thing when I was reading your article (I linked back here from it). Together with the massive bonus action, it feels a lot like the nests are being padded prior to the event. If I were those banksters, would it not be in my interest to siphon as much as I can right now? Any fixed interest debts they now assume may become drastically less expensive to service as the hyperinflationary event unfolds.
Am I looking at this incorrectly?
When it's all said and done and we look back on this period in 30 years or thereabouts, we are going to wonder why the people of the world were so fuckin stupid.
How could they have trusted the robber barron cartel, the Fed/Wall St relationship with the Treasury? Why was it not so obvious at the time?
By then, the next scam to impoverish the masses will be in full swing while most sheep will be coming to terms with how they were diddled in the past.
Why a sfp? Why not regular notes?
Presenting...
http://av.r.ftdata.co.uk/files/2010/02/Super-Treasury-Brothers.jpg
Hang on. I still don't get it. Indirect bidders include foreign CB's, correct? So if some of them (maybe including China) are prepared to bid 0%, in order to ensure they get 100% allocation, how does that imply they are letting their Bills expire? Do you mean that they are letting their longer term Bills and Bonds expire and rolling them into ever shorter maturities? In which case, we'd be looking for ever weaker indirect bids out along the curve?
Yeah... this post makes 0 sense.
So China is "not rolling their bills". Which means they hold $ at 0% interest?
Everyone who holds large "cash" holds (and rolls) bills.
You and I have $500 in our wallets. These come in $20s and $50s.
If you hacve $1B or $500B in cash... you hold T-bills. These are JUST LIKE $20s and $50s except you buy them for 99.99% of price each month. Which across $500B... adds up.
The only way China would "stop rolling bills" (really herculean-ly stupid)... would be to DO SOMETHING with the money -- buy equities, buy resources, buy other FX. (All of which would strength CNY/USD and probably cause a spike in economic activity in the US (i.e. China buys 1000 Boeing 787s (~100B) and 50 GE Nuclear Power Plants (~500B) and pay back royalties on MSFT Windows ($100B) and Hollywood Movies ($100B) and buy 300M iPads ($250B).
The only 2 things to do with $1 are to "spend it" or "lend it". No other choices.
I am financially ignorant.
Wish someone of you would put this in laymens language.
What i perceive is a failed auction as the fed bought it all. And they dont give a damn who sees it. Like , "in your face"
Thats why i thought it was a messege to China. also noticed we lie to China (strong dollar/lol) and cheat them (derivatives) as well as sell arms to their neighbor (taiwan) then we irritate them by having tea with the tibetan symbol of freedom.
This is how you treat a business partner?
I suppose thats reasonable in light of how we treat our own.
USA HOLDS THE ROYAL FLUSH.
Think about it as if the G-8 were all playing cards in Vegas.
Now think about the symbolism. Any questions?
hello I must b to dumb to post an repli.
Soo sorry my frainds. loll
ok but.........
hey that's not how it works
heeeeeeeey, that's not how it works ese!
reply
Wait till the all the buyers dry up and they come ofter your 401k with maditory regulations to jam your retirement into 30 year bonds with an anuitized payment stream upon retirement. They NEED money, you HAVE money, when have they not taken or printed what they needed?
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