Horrible 5 Year Auction Sends Treasury Complex Into A Tailspin, 5 Year Yield Surges 22 Bps In Two Days

Tyler Durden's picture

It has been a long time since we had seen a 5 Year auction as ugly as today's: printing at a 1.615% high yield, the 5 Year had a 3.5 bps tail off the bat to the 1.58% WI where it was trading before. The internals were just as ugly, with the Bid To Cover coming at 2.59 a plunge from May's 3.20, and the lowest since June 2010. Not surprisingly, Indirect interest evaporated once again, tumbling from 47.1% to just 37.6%, with Primary Dealers having to take up more than half, or 52.1%, and the remainder going to Direct Bidders. Too bad they will have no more opportunities to flip these back to the Fed. Which as expected starts to confirm Bill Gross' thesis that in the absence of the Fed monetizing, rates are about to go higher. One look at the second chart shows the relentless selling in bonds since Sunday. And as reported previously, with a barrage of issuance due in the months following the debt ceiling hike, which will probably be some time in July or August, look for the sell UST thesis to start getting its long overdue confirmation. In the meantime, the 5 Year yield has surged from 1.35% yesterday to 1.5727%, a mindnumbing move.

5 Year summary:

UST complex summary:

And... splat:

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Turd Ferguson's picture

Let's see...

No QE = higher rates

Higher rates = death to The Great Ponzi

Death to The Great Ponzi = loss of power for TPTB

Conclusion: QE can't and won't ever end.

SheepDog-One's picture

And on the other hand, QE cant continue either....the great conundrum. Painted themselves into a corner with La Brea tar.

Hulk's picture

Stuck betweek a rock and a hard on...

tmosley's picture

You misspelled "cock".

Problem Is's picture

Turd has spoken...

In the words of that great contrarian investor Scooby Doo:

"Rhut, rho..."

LowProfile's picture

Painted themselves into a corner with La Brea tar.

More like with napalm.

Boston's picture

No QE = higher rates

Nope.  Counter-intuitively, the opposite happened in 2010 when QE ended.  Rates fell.  Check for yourself.

After last week's massive rally, this is a very normal pullback (in prices).

Buy on the dips!


SheepDog-One's picture

LOL, rates going negative...'thats just normal'...oh ok.

Boston's picture

Nobody said negative (unless you're talking about the 30 day bill which just did) on the 5 year.  Just closer to ~1.0% before the big reversal, when QE3 gets pre-announced.

Again, study last year's template: the huge move DOWN in rates happened AFTER qe1 ended.  QE2 ends in a couple of days.....

SheepDog-One's picture

The 'template' is 'Get everyone 100% sure there will be never ending QE's, then pull the trap door out from under their sheeple asses'.

Watch and see.

Boston's picture

If no QE3 arrives, then all the better for a long trade (NOT buy & hold) in Treasuries.

Without QE3(etc.), what will the sheeple do?  Panic.

Where will they run to when they panic?

Short-term Treasuries.


eureka's picture

Perhaps. For a very short term hold. Till treassuries perceived "flight to security" status is revealed to be fraudulent. Sometime this winter.

Boston's picture


I was short in the fall 2010.  There's little doubt that a rally won't last.

But in the meantime, why not grab an opportunity to profit (or avoid losses).  If everyone is so bearish here, and risk assets (especially US equities) are still near their recent multi-year highs, then why not gain from what will almost certainly be a flight to safety when the shit hits the fan?

We've seen this movie (clip) before....last summer.  We know how it ends.

Glasgow Gary's picture

The script is exactly as you say, except in 2011 it has already played out. Stocks have already corrected to price in QE2's end, and UST have already rallied. There is no "event" that occurs this week. The event has already occurred. To hold the view that the shit hits the fan starting after June 30, you have to believe something changes. It doesn't. The FED will still invest maturities and divs from their total balance sheet. Also, there will be less flipping of UST to the FED. You should use your script and consider a twist: UST just hit their price highs for the year.

Urban Redneck's picture

I think the flight to safety has been called into question by the utter lack of flight to safety so far in 2011.  However, bank recapitalization will force banks to raise capital through debt or equity offerings then lever it up and buy US Treasury securities to meet Basel 3 & D-F tier 1 requirements.  But it's still only short term cover for the thieves in Washington.

kito's picture

you are all obsessed over qe3 coming. not coming this year. fed not worried about deflation now. stocks holding their own. kiss fed balance sheet expansion goodbye for a long time.




Cdad's picture

Brother Dog,

I have a lot of cash sitting in my account.  Ummm, tell you what, I'll loan it to you and pay you interest on the loan.



SheepDog-One's picture

OK brother! Just as soon as I buy me some more LULU and Monster energy drink stocks.

eureka's picture

10 YR note up 10 basis points.

mophead's picture

I concur, this is what I expect. If rates do go up, they'll come back down again, and then some.

Turd Ferguson's picture

Just for fun I junked myself, too.

Turd Ferguson's picture

And I just junked that, too, and this.

El Hosel's picture


 Take this and put it were the Junk don't shine



Problem Is's picture

I am now using the <JUNK> button as a thumbs up on a post...

So I <JUNK> you too Turd...

slow_roast's picture

ego-implosion in 5..4..3..2...

jus_lite_reading's picture

SOME trolls are junking the TRUTH!! they HATE Zerohedge and what it stands for because it is exposing the truth!!!!! CROOKED BANKSTERSS!!!!!!!!!!

NotApplicable's picture

You might get less junks if you stayed off of the caps lock, and were a littke more restrained with the exclamation points.

Just sayin.

(BTW, I didn't junk you.)

jus_lite_reading's picture

Some sick basturd just likes to junk everyone...... must be BEnron

jus_lite_reading's picture





SheepDog-One's picture

DAMN thats like 3 or 4 nuclear disasters going on in the US, and all anyone seems to care about is fucking LULU stocks! WTF!


Hulk's picture

Reminds me, I need to close out my MMF's and convert before its too late...

kito's picture

yes, reeeeaal lite reading

redpill's picture

Paging Mr. Gross, paging Mr. Gross

slow_roast's picture

Are the market chugs higher.  I think I'll hang on to my short positions now...next week could be ugly.

Re-Discovery's picture

Today is all AUM (Assets Under Management).  Desks pumping on vapo thin volume to get that one last summer bonus.  Then the massive selling post QE2 to get further QE.  Thursday's the day.

slow_roast's picture

Yep, I agree that this vapo-rally will end very soon.  "Good" news out of Greece could push it a bit higher but in the coming weeks and months it's difficult to see what will impel this market higher.  Taking up shorts accordingly and hording cash.


Good luck!

kito's picture

yes next week could get ugly, or the week after that or the week after that. funny thing though, it never seems to happen. still waiting.....

HelluvaEngineer's picture

I starting to think this end of POMO thing is going to work out just fine.

4shzl's picture

Squeeze and dump -- just da boyz doin' their thang.

SheepDog-One's picture

Come on Robo, I see you junking every post again you little clownfart.

Cassandra Syndrome's picture

When Austerity hits the US, who will pay Robo to troll this website?

Arius's picture

austerity is for masses not likes of Goldman Saks ... :-) ...just for fun ...

aint no fortunate son's picture

and stocks gun higher...

rubearish10's picture

It can't be this simple. It would be the most anticipated trade (sell UST's) ever! Something will happen to change this. If not a QE morph the event can and should be pervasive stock selling. Get the 30 day T-Bill all the way back to 12bps and roll out the asset buying spree, yet again. You should own "more" Gold by then.