This page has been archived and commenting is disabled.
Guest Post: The 30 Year Looks To Be Screwed Into Year End
»
- 3869 reads
- Printer-friendly version
- Send to friend
- advertisements -
Contact Information:
Tips: tips [ at ] zerohedge.com
General: info [ at ] zerohedge.com
Legal: legal [ at ] zerohedge.com
Advertising: ads [ at ] zerohedge.com
Abuse/Complaints: abuse [ at ] zerohedge.com
Suggested Reading:
Make sure to read our "How To [Read/Tip Off] Zero Hedge Without Attracting The Interest Of [Human Resources/The Treasury/Black Helicopters]" Guide
It would be very wise of you to study our disclaimer, our privacy policy and our (non)policy on conflicts / full disclosure. Here's our Cookie Policy.
The big question that remains is what will happen when Stimulus $$ is removed not just in U.S., but globally (i.e. China).. Can the global economy stand on its own 2 feet...
As for another round of U.S. monetization, Yesterdays Dem. defeats provided the answer to congress: watch you step, the taxpayers are fed up..
>>As for another round of U.S. monetization, Yesterdays Dem. defeats provided the answer to congress: watch you step, the taxpayers are fed up..
That statement is so far from the reality of the why of yesterday's truth...boggles the mind.
Cure : Stop watching/reading the MSM.
ps, FUCK YOU NJ, enjoy your 8% sales tax and legislative grid lock.
mood = extremely pissed.
>>That statement is so far from the reality of the why of yesterday's truth...boggles the mind.<<
Thanks so much for for your, ahem, asshole opinion, which adds absolutely no value..
and p.s, fuckhead, I don't like my sweat bailing out bankrupt failed socialistic experiments
Thanks so much for for your, ahem, asshole opinion, which adds absolutely no value..
and p.s, fuckhead, The election had to do with the people running and not the Obama factor but I guess your too much of a wing-nut to realize that.
Finish that coffee break D.B. and get back to that ACORN desk job
yea, i like you, ur so cute, just a little fuzzybuzzy, throwing out the strawman, lmao
oh bye the way did you catch (back to my original point) this :
"
Speaking on the morning broadcast (see video below), Fox News host Martha MacCallum reported that President Obama opted to watch an HBO documentary about his presidential campaign instead of last night’s election results.
Said MacCallum:
Oh yeah, the poly-ticks are really scared...
Nov. 4 (Bloomberg) -- The U.S. Senate may approve as early as today a $45 billion plan to expand a tax credit for first- time homebuyers, extend jobless benefits and provide tax refunds to money-losing companies.
The Senate voted 97-1 to end debate on the measure and clear the way for final approval. The Senate is likely to pass the legislation and send it to the House, where Democratic leaders predicted it would be quickly forwarded to President Barack Obama to be signed into law.
The plan would be the first major extension of provisions in February’s stimulus package. The $8,000 homebuyers’ tax credit, slated to expire this month, would continue until April 30 and be expanded to include people with higher incomes and some who already own homes. The credit would cost $10 billion, according to Congress’s Joint Committee on Taxation.
The measure includes $2.4 billion to extend unemployment benefits for as many as 20 weeks, enough to aid the jobless through the holiday season. It would loosen tax rules for homebuilders and other money-losing companies to let them claim an estimated $33 billion in tax refunds this year, according to Joint Committee on Taxation estimates.
Senators voted 85-2 on Nov. 2 to advance the legislation. It has been delayed for weeks by Republican demands for votes on amendments to the plan.
From RBS analyst, courtesy of acrossthecurve.com:
“While speaking of curve slope, I have attached a chart that shows how critical the +256bp level is for the 2y-10y Treasury curve. Note that the 256bp area has been a solid “support” for the curve since August. Also note that the curve has been tracing out a downsloping channel since the rate highs and curve wides seen in early June. The top end of this channel closely coincides with the curve range wides touched in Augsut and September on a closing basis. What’s also interesting is that the 10yr yield has been in a similar, downsloping channel since 4.0% was touched in early June (shown in the second attached chart). This speaks to the highly directional nature of the curve when we have short rates anchored by the Fed’s “considerable period” mindset.
I am intrigued that the slope of the 2y-10y is testing the the top end of its channel when 10yr yields have a long way to go (to ~3.72%) before testing theirs. This hints that Treasury 10yr rates may be too low– or the curve is too steep. We’ll certainly know more about all this in next week’s auctions but… what I can say is this: those who’ve had curve steepeners on (like 2’s-10’s) might consider taking gains against the 256/257 level to see how things develop from here… Earlier today the 2yr note came within a whisker of its huge resistance level of 0.87bp and so that makes me lean toward the curve being too steep (no room for short rates to rally) rather than 10yr yields being too low."
i agree that the 30-yrs look scary here, but i keep going back to the housing market. I think that both 10s and 30s have an upper limit yield wise, that will look very attractive relative to MBS in the 4.5% to 5% range. And mortgages must remain cheap for as long as possible or forget about the clearing of all that foreclosure inventory, bank health, etc. ignoring international flows for the time being, i dont see how you maintain such high UST rates for long given the current economic backdrop. Something will give.
On one hand rates must remain low to not have the credit market explode, on the other hand they must rise if more people are buying into inflation. Otherwise, we are relying on some philanthropic bond buyers to fuel economy and they might just get pissed off after a few too many donations.
v. true. though (and not that they are exactly the same) japan has had incredibly low rates for a decade. i agree its all about which inflation/disinflation camp you're in, but there is a clear answer i believe as to which is in our future.
pivot,
You underestimate chicanery, I am thinking 5.5% or higher in the 10 yr between now and next year. your willingness t suspend reality is limiting your scenario planning
I noticed a Citi advertisement at the top of the last page??? Hypocritical...
ZH is continually critical of such institutions and then receives revenue from them?
You see ads = IE fag
why not IE Nigger ?
nigger, fag it's all good
The yield is at a critical point and, while I'd never say never, I don't see yields going up from here. The 30-yr is being squeezed in a symmetrical triangle. It won't be long before we see in which direction it moves. In my view, the yield is about to break to the downside. My view is partially supported by the fundamental fact that deflationary forces are in play. Inflation is a down-the-road event once de-leveraging is complete.
From Rosie:
"This is 1992-93 all over again when the commercial banks used the steep yield curve as an opportunity to reliquify their balance sheets, and the flip side of that process was a listless and jobless recovery. The only difference is that the credit contraction process this time around will prove to be even more pernicious and enduring than it was back then, and inevitably drag Treasury note yields back down towards the lows we saw almost a year ago."
Carina,
When it comes to trading, let me suggest suspending fundamenntal facts. I do not say that facetiously. Let me suggest an inflation scare happens b4 a deflationary scare.
Is there any reason why we shouldn't be dumping our money into TBT? It seems like every scenario points to TBT going higher. If the economy recovers, the long bond will go to more normal rates. If hyperinflation occurs the long bond will plummet in price. If the dollar drops the long bond will plummet in price.
The only scenario that is keeping the long bond low is the armageddon scenario, which is no longer on the table.
Is there any other reason that I'm missing?
It seems like TBT going from $47 to $70 is a more likely scenario than GLD going from $107 to $200 or even $130.
TBT is full-on bet against the Fed. Even they can't buy $1 trillion+ of MBS and then get smoked when interest rates rise.
But at some point, interest rates must rise. We're at historic lows here. If the fed funds rate is 0%, given our financial situation with such debt, what could drive the long bond rates down even further, except the fear trade?
If everything goes back to normal tomorrow, doesn't the yield rise?
At some point interest rates will rise, but that may not be anytime soon. I'm not sold that the economy/financial system is on solid footing, even though the existential crisis is over. Given the slow earnings bleed that a slow economy produces, SPY valuations are crazy. If there is a correction, then there will be another run to treasuries. Just look at Friday. Treasuries can be viewed as an equity hedge that pays you a coupon; the longer the duration, the bigger the punch.
All this aside, in the age of announced and stealth QE, rates could take a while to go anywhere. I think TBT is a great vehicle to express a trade. I don't think it is time yet.
If you are inflation wary, how about hedging a long position in 10s with TBT. Complications, complications...
Wouldn't such a hedge against long 10s pose a duration mis-match? TBT is weighted between 15-20yr maturities, last time I checked.
have waded myself into TBT, simply as a trade. The 'flight to quality' risk you reference is on-mark, unfortunately. Am more wary about the issue of supply (deficits, health care reform, son of stimulus) and yields rising to placate investors.
Sorry. I thought TBT was 10yr and TMV was 30.
...except that everything isn't going to go back to normal tomorrow. There's too much debt in the system that must be purged before we reach a new "normal". There's no going back to the way things were. We've witnessed an historic bubble, and the bursting has yet to complete. Debt levels are still unsustainable, banks are hiding untold amounts of bad debt, consumers are still over-levered, credit is still unavailable, and the savings rate will continue to go up. Banks are currently underinvested in bonds. There's plenty of support for bond prices.
There IS NOT too much debt in the system. I'm sick to death of hearing this nonsense. Maybe too much for your conservative perspective but NOT too much to hinder future economic growth. Wake up, open your eyes, put on your thinking cap and don't be a dummy!
sounds like you may be suffering from confirmation bias... How can any reasonable person state that there's not too much debt in the system???? Give me a break. You must have blinders glued to your eyes with Gorilla Glue.
Now that the Fed is the proud owner of Treasuries and MBS, I cannot see how they can even hint at raising rates without wrecking their own balance sheet and making them look foolish for being so risky. They are probably discussing that right now.
As for buying TBT, I agree. Better yet, buy TMV which is the more leveraged version of TBT, but for the 30 year.
Bubbles Ben either needs to crack equities here to get
sheeple into the long end or let it all go to hell.....
bubble + higher yields ahead and a false recovery?
Good job, Ben!!!
Ben's dumber than Greenspan. The jackass has provided the banksters with all the liquidity for speculation anyone could want so the prop desks and hedgies ramp dog crap
stocks to the moon. Meanwhile, who's left to buy Treasuries? Just him. Brilliant.
And he sustains the credit crunch by giving banks the option of paying them interest to park excess reserves instead of exchanging credit risk for income by making loans in the real economy.
Even guys in the Federal Reserve know the man is an idiot.
Don't even consider TBT for a long term hold. It's performance isn't good over the long haul. Short term only.
If you look at the period July, 2000 through September, 2002 in ^TYX, you will see a pattern very similar to what is currently playing out in the 30-yr yield. The structures are almost identical, except we know what happened to the yield in September, 2002 and we don't yet know where the yield will be at year-end this year. I'm betting it will play out like in 2002 and be much lower - between 3.5 and 3.8 - than it is today. This jives with what's going on in other markets: a correction is due both in equities and the dollar (very crowded short dollar position), not to mention the massive amount of default yet to take place in both commercial and residential real estate. We have not seen the bottom in these markets. These factors support lower yields at the long end. Having debt is the same as being short the currency. Deleveraging debt is the same as going long the currency. The shorts are going to get squeezed and bonds will rally.