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Fed's Attempt To Bloat Curve Belly Is Successful As 5s30s Goes Ballistic
After a whole lot of people got caught flatfooted expecting the Fed to buy 30 Years as per Goldman's recent client recommendation, the long-end of the curve has gotten crushed, even as the belly was exploded. This is driven by the FRBNY's announcement that the bulk of purchases would be focused in the 4-10 year bucket and not further. Our take is that this is a bluff - the Fed will be forced to bid up the 10% of the marketable security portfolio that is beyond the 10 year point (as we demonstrated yesterday in the full maturity spread). As a reference we highlight the 35% SOMA limit which is most limiting to 10 Year plus issues. But for now, the Fed's attempt to bring back the bank carry trade is working, and as the table and chart below shows the yield change in the belly compared to the long end is simply stunning.
The 5s30s is at an all time record, as there is now almost no space for yield collapse to the left of the 5 year. Well, there is. But first it will make the curve flatter.
The question of how long this ploy will succeed will be answered by how long China is willing to see the trade off between its dollar indexed collapse in its holdings be offset by actual price appreciation. As recently Indirect Bidders have been most active in the 7 year and further area, China is certainly not seeing much love as a result of QE2 for now. Furthermore, very soon not even the 30 Year price rise will offset the dollar adjusted drop, especially if the dumping in the 30 Year persists. Also very soon, China, Europe and Russia will say enough, and offer a commodity backed SDR-alternative, which the regions will have an implicit understanding will be the next reserve currency. Until then, keep on frontrunning the Fed, as after that it is pretty much game over for the Chairman.
h/t John Lohman and Credit Trader
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Of course they're successful. They're The Fed. They can do anything including Biach slap and were the ones being slapped. Oh, Ben, You hurt so good.. Harder!!
Again, it depends on China and other outside influences as to how long the lunatic Bernanke and Geithner continue this stupidity.
You read my mind. What is China waiting for?
As long as the dollar can buy gold, silver, and oil, they will not want to dump it.
that makes no sense, if they were racional they would buy gold silver and oil with all the cash they have today, because tomorrow they might be able to get only 50% of the value today
If China just dumps US treasuries to buy commodities, the former will collapse before they sell them all, and the latter will simultaneously rocket.
Besides the fact that they're a bunch of bureaucrats (and consequently not wildly keen on doing anything radical) they need to balance getting rid of their US treasuries, and starting a stampede for the exits before they've maximised the treasuries' remaining value.
Difficult balance...
yeah, i thought of that option too after i wrote my comment, i get it that the news of chinese buying everything up would spread fast, but somehow i still feel that they would be without the chair when the music stops, because the music is gonna stop sooner than they can say tai chi...so better having spend at least some amounts of this soon to be worthless paper than none...thats just me
Bernanke has gone M.A.D; metaphorically one wonders which historical role he assume: USSR or USA
Tyler, what happens to QE2 if Mr. Paul begins to pull the rug from under Ben? That won't happen till next year but rumblings will be heard long before that. QE might not make it to spring! QE2 certainly is about to bring a response from our trading partners.
Nobody listens to Paul.
diddly squat is gonna happen.
Unless he freezes the debt ceiling!
He's gonna be the chairman of the committee that oversees benny's operation.... They'll have to listen until Paul drops the gavel at the end of the session... Get your popcorn ready. Benny gonna squirm real pretty-like, awaitin the unholy reaming he's in for, and it's gonna make for some real interesting theater.
He will be the chairman of just 1 out of the 7 house and senate sub-committees in the finance arena.
John Titor in 2012: "New York Stock Exchange Soars As Others Crash"
Quote
While markets across the world have been crashing, the New York Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country's hyperinflation. The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent. But before asian traders start packing their bags and heading west, they should bear in mind that these figures are just another representation of America's collapsing economy and are almost meaningless in real terms. USA, once a Global breadbasket, is staggering amid the world's worst inflation, a looming humanitarian emergency and worsening shortages of food, gasoline and most basic goods. Inflation is at 231 million percent, but some experts put it more at about 20 trillion percent.
Everyone expressed their dismay at the "gross economic mismanagement" by the USA government which has led to the collapse of the Global economy, however, the stock exchange was managing to survive despite the harsh environment.
Let me guess, coal will comprise a large part of the commodity backed SDR. A little coal for your stocking.
What are the odds that the commodities selected to back the SDR are extracted mainly in China, Russia, and Europe? Why not let China and Russia join the Euro. That would be simpler and quicker.
All assets are rising save the hapless dollar. If you think the "BRIC" are gonna...us I think you might be waiting for a long time. The word "forever" comes to mind. "Smellthegloveenomics" works. We appear to be on the verge of "liberating" Kandahar however. Since nothing else is to be "done on the cheap" in our jobless prosperity...what is the status of our personnel figures in this fight? Do we have the numbers? Is the effort being properly supplied? Or are we "pulling a Port au Prince"?
This insanity will end poorly. The very people the Fed claims to be trying to help will not have the ability to purchase real estate nor spend further to create a geniune expansion because excess income will be destroyed by commodity inflation.
Ben is a F'in moron.
Ben knows what he is doing. But he never says a single honest word, so anyone who takes him at his word thinks he is "making mistakes". Of course, nobody including Bernanke knows exactly how long his lies and deceptions will work. When the dam breaks, look out below (anyone holding dollars)!
Bernanke man of the year redux.
+1
I just happen to have some of those.
Sold to Ben.
I wonder if the Chairman has any secret ingredients, like this chairman:
http://www.youtube.com/watch?v=kXqY8EZ21-g
Thanks for the link between the blue diamond crowd of monetary policy and the Iron Chef world.
http://www.nationwidecandy.com/itemdesc.asp?ic=5230&source=Google
Also very soon, China, Europe and Russia will say enough, and offer a commodity backed SDR-alternative, which the regions will have an implicit understanding will be the next reserve currency.
Following many other commodity producers seeking settlement outside of the $US. Still macro centricism without support the underlying micro imperatives is simply another form of hot swapping and would resolve nothing but recognition that the current version is bankrupt.
Meanwhile, it looks like some great long juicing is happening. Give the 30 another 30pb then the suckers should be cleared out by then. The indicator to look for will be a note from Goldman advising their clients to move out of the 30...
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