Guest Post: Observations On Unusual Bond Deal Behavior

Tyler Durden's picture

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Anonymous's picture

Well, it could also mean that the primary dealers were the ones buying up all paper in the Treasury auctions (since nobody else wanted to buy this stuff) and they need to unwind their positions.

Anonymous's picture

Dollar is going like a panic fall. if DXY is not turning up quick, what will happen? it goes to 72? is this how we get a big shake-up? everyone now is getting a quick finger, and they think they can get out before anyone else. Is this how we get a panic move or crash?

Anonymous's picture

Definitely worth noting

SDRII's picture

Interesting considering Bloomber was out this am with an article claiming the net short position I recall 16bn or so last week was an indication of the dealer community piling into riskier assets and using the Ts as short hedge. No mention of the sizable average historical net short position nor the reversion to net long 

Miles Kendig's picture

That should tell you everything you need to know if you know the flow

Anonymous's picture

like this gem:

"The two-month decline in net positions was interrupted last week, as net longs rose to $16.2 billion"

Anonymous's picture

See convexity hedging, or lack thereof on their MBS, agencies and other assorted interest rate derivatives that have been blown off or hidden on their books.

hardball22's picture

I think these dealers' Treasury holdings are an asset-side balance of the gratuitous liabilities taken-on from TARP and other injections.  In a fearful (to be sure) environment where deposits with the Fed carry a yield and banks' spreads are tacked off 50bps at the discount window, I doubt banks mind a negative spread on some liabilities.

ex. Banks take capital from TARP-esque injections (i.e. preferreds with dividends) and just park it in Treasuries (low yield). The negative IRR is peanuts compared to the downside potential & principle erosion that could result from yield chasing.

If that's the case, it just goes to show us how much gratuitous liquidity was rammed down banks' throats.

Gordon_Gekko's picture

LOL! Who would have though that the "flight to safety" really was just market manipulation (Aww come on, you don't think the Fed TOLD the PD's to go long treasuries?) and in reality, a "flight to trash". Like I said before, BOTH the Bond and Stock markets have been rigged and are therefore WRONG.