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Indirect Hit Ratio At 100% In Just Completed 4 Week Bill Auction
- 4 week prices at 0.056%
- 27.75% allotted at high; Median rate of 0.04%, low of 0.0%; The median rate was 0.000% recently
- Bid to Cover 3.82, compared to 3.97 last week
- Indirects take down $5.97 billion of competitives, or 19.8%
- And shockingly, the indirect hit ratio was 100%: $5.956 billion tendered by Indirects, $5.956 billion accepted. This is a stunning result as every competitive indirect bid into the Bill auction was covered.
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Ignore that man behind the curtain.
You wouldn't be talking about the Wizard Of (troy) Oz, would you?
What does this mean
Good question. I don't know where to look to educate myself on this. Tyler posts this every so often, but, I can't figure it out.
Cmone, a little googling guys: http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html
In this instance it means that our mystery "indirect bidder" bought all of the notes offered (tendered) for auction. The Primary and Direct bidders weren't so interested with only 21% and 22% being purchased, respectively. It is thought that the mystery buyer here is the FED.
I'll take a whack,
When the purchases do not go through the primary dealers who then subsequently resell the securities to the market, it is harder to determine true demand (yield). Since the identity of the direct purchasers can be masked, it leads to speculation about weather further monitorization of the debt is occurring in secret.
+1
And I believe "indirect" in this case is Fedspeak for: guaranteed-not-to-fail auctions. It's like when Saddam got a 100% vote - yeah right. "Make your mark with your bloody stump here."
http://news.bbc.co.uk/2/hi/2331951.stm
Many thanks to both Anonymous and Ripped.
Thanks for asking Pedro...
"What does this mean?"
I'm a neophyte, but those who are in the know are too arrogant to give an appropriate answer. So I'll give my answer and then they can feel superior about jumping my case when I explain it incorrectly.
The direct bidders are exactly that, entities who go to the auction and buy directly for their own accounts. The indirect bidders are the primary dealers (the banks who work with the FED). They buy for their clients not for themselves, they are indirect purchasers. It's very lucrative to be one of the chosen few primary dealers, they make gazillions buying the bonds directly from the FED at auctions and then reselling them.....therefore these puppies will not upset the FED. If the FED says buy, they buy. Must keep the puppetmaster happy with you. These indirect bidders never get stuck holding the bonds, if they buy too many bonds they cannot unload them, they just resell the bonds back to the FED next week (outside of the auction process).
An auction with 100% means that the indirect bidders came in at the end of the bid and bought everything that was left. The were the only ones in the room at the end of the bid, they bid for what was left and they got it all. (100%) The bonds would have gone unsold without their presence. In ESSENCE because the bonds are subsequently repurchased by the FED the FED was the real purchaser of these bonds. The FED just saved the auction from failing by buying up all the remaining bonds through their puppets, the primary dealers (the indirect bidders).
IS that close, all you supergeniuses?
That was a most excellent summary Turbo. Very clear. Sorry to take advantage, but, if I may ask; What is considered a normal or successful auction in percentages? Does it have to hit 100% to be declared a successful auction or would 60-80% do?
In other words, nobody wanted to buy.
Japan bought them all, because Mr. Toyoda is facing the hearing in the US.
Any more questions ?
Daddy what do you do at work?
Well darling I'm an Auction Repairman.
LOL!
It's either a sign of desperation or complacency that they don't even try very hard to cover their tracks or put on a good show.
I wonder if that's a sign of inflation? Guess you can't distort a number like 100%.
I think it's safe to go downtown and put my A-board on: GOLD BITCHES!!!
Wow they are really getting good at this.
What does this mean and why is it noteworthy?
There are some rare animals in this park. Definitely worth the price of admission.
What is the significance of the "indirect" bid?
Sorry if the question is ignorant ... I just don't know what it means.
Thanks.
So we pretty much ate the whole enchilada. That's gonna hurt.
"it rubs the lotion on it's skin!"
+1 HAHAHAAAAA!
QE under the table...nice.
someone please explain the significance of "indirect bids"....what does that tell us ??
The indirect bid's are consumers who's idenity is unknown, like the primaries. Some speculate, and probably correctly, that the Fed is a secret bidder, buying the Treasuries for one of it's accounts and in so doing expanding the money supply.
Dealer blackjack. Player loses.
You're all wrong....when the deflationary spirial kicks in during wave 3 (any day now), then these yields will go negative. Ask yourself the question....if you had $5BB in cash, where would you put it? In a bank?? In stocks, gold or corn?? or in hyper liquid us government backed short-term cash equivalents?
It's a trick question right? But I'm going to go for treasuries.... What did I win?
You're very own government approved and supported printing press.
Now get to work.
"hyper liquid us government backed short-term cash equivalents?"
That reminds me of the old realtor motto..."Property values double every ten years...buy!"
[hyper liquid us government backed short-term cash]
Translation: monetary diarrhea
It had to be said.
I long for the "before time" when all this would have been incomprehensible gibberish to me.
DAMN YOU ZH!!!
Ignorance = Happiness.
Comment of the day?
apparently.
Along those lines... This is "incomprehensible gibberish" to me, as I'm not a finance/investment person.
That said, can somebody explain this post to me, please? I don't understand what's being said or what it means. Thx.
It basically means we are buying all of our own trash.
Yeah. But this way you'll actually see the bus that's going to run you over. It's all about the horror, baby!
Good point!
I am not one to avert my glance from an epic/historic train-wreck...
Got Glock/Gold/Gumption?
Kant agrees, but when asked if he would have done it differently, he said, "No."
Personally I like to think of not ignorance, but bliss. Igorance is not bliss. Bliss is happiness, and hapiness is the truth.
You guys are the gods of reality news. Why oh why can't we have a television version of zerohedge......*sigh*
No no! Because then they would need real money to operate, which means selling ad spots, which means pleasing your sponsors, which means running puff pieces and letting the sales department edit the show and pull stories off the air right from the hands of the talking heads even as they read them. Then it's nothing by cocaine, [cheese|beef]cake, booze and ratings week all-nighters.
Besides we already have CNBC for that.
You need a camera, some lights, and a video editing software package. Storage is cheap. Bandwidth is pretty cheap.
i would buy every ounce of silver on the market, and sit back and enjoy the detonation of JPM.
I've been reading these for a while, but don't understand some of the terms (ie, indirect) or the significance of it. Can someone explain?
US Treasuries are the safest until they are not. Once the whole thing collapses there will be nowhere to hide.
You can't escape the equation, building a system on a requirement for exponential growth seems futile. No need to worry viruses haven't figured it out either.
Some viruses only die when they have killed their host.
Either it was quant easing or the Treasury told the primaries about the increase to $200 before this auction so they sat out to get higher rates in future auctions. If we are now having to finance our own short term debts, we are in very, very serious troubleright now. Another idea is the Fed is attempting to make sure we avoid another inverted yield curve...idk.
Charlie Munger ala BRK (Berkshire Hathaway for others who don't know the ticker) just wrote an op-ed on Slate titled "Basically, It's Over" saying that if we don't adopt the principals in the Volker rules, we're tumbling towards the French Revolution.
http://www.slate.com/id/2245328
I like Charlie, he's no B.S. however it's getting scary to have my worst fears confirmed.
I haven't decided which one has better matched symbolism the Fed, or Goldman Sachs as the Bastille... We haven't seen a Robespierre emerge yet... that's something at least.
God help us...
I'm reading this while my children are reciting the "Pledge of Allegiance" in the background...I think I'm going to throw up...
Who are the direct bidders at bond auctions?
http://blogs.marketwatch.com/marketjunkie/2010/02/12/who-are-the-direct-...
Let me translate this for you all:
GOLD BITCHES!!!
I am Chumbawamba.
Huzzah.........!
Sometimes not obeying is right... http://www.taxfree15.com/
Down $10 today chump.
Good advice.
And the DOW down $113. And your point Anonymous can't-get-a-real-name is?
Oh, that gold is a good buy today... then you are right. The time to buy physical gold is now.
WB Chumbawumba!
FAZ is up 5% there for a bit. Lesson: 3:59 on the day before treasury auction, buy FAZ.
Oh, nice. I didn't scroll down far enough. I have admit that when I first started surfing ZH I was a little put off and even confused by some of your comments. They have all become crystal clear as my understanding has increased.
Thanks! :)
I am Chumbawamba.
Who is the indirect bidder...I know newbie question.
Tyler, can you explain the difference between indirect bids and indirect hit ratio? Thanks!
Either Ben bought everything (not likely due to amounts) or TSHTF by April.
So:
Primary Dealers accounted for 57% of purchases but only 21.6% of all Primary Dealer bids were accepted.
Directs accounted for 8% of purchases but only 22.11% of all Directs bids were accepted.
Indirects accounted for 16% of purchases but 100% of the Indirect bids were accepted.
SOMA accounted for 16% of purchases and 100% of SOMA bids were accepted. SOMA is the System Open Market Account. http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html
So it would appear there is a market in the Primary Dealers. More were trying to buy then were accepted.
Directs also apepar to have a real market. More bids tendered than accepted.
Indirects do not appear to actually have a market. you would expect to see more bids offered than accepted if people were really "bidding". To my certainly uneducated and naive view this was a failed auction taht was saved by a miracle bid from indirects. It also would appear that the Fed is buying and that is stealth monetization.
The Fed should be buying through SOMA?
Or I could just be totally wrong here.
From the NYFed Website:
Conclusion
Steps to increase the transparency of U.S. Treasury auctions in recent years have provided useful information to market observers. Investor class allotment information—shown to be related to the performance of individual securities—is now available on a more timely basis and for more securities than in the past. In addition, bidder category data are now available, and their prompt release offers observers an early read on the allocation of securities. The indirect bid, in particular, seems to be a fairly good proxy for foreign purchases of Treasury notes, although not Treasury bills.
http://www.newyorkfed.org/research/current_issues/ci13-1/ci13-1.html
So Mr. Big is pushing out dollars to China so they can buy more gold?
Maybe this explains part of it:
A failed bond auction occurs when there are not enough bidders for the bonds sold. Say the UST wants to sell $10 billion in UST bonds. The US government is in essence borrowing 10 billion from the buyers. Normally, say normal for 10 years ago, there might be 20 billion in bids for 10 billion in bonds IF the interest rate paid on the bond makes sense and IF there are enough bidders. Because the US currency was so strong, the UST could essentially set any interest rate it wanted and not only wld people still buy the bonds but the offering would be oversubscribed. That is, the US currency was so strong any interest rate made sense to a lot of buyers. 1925 question: USD or German Weimer Republic bonds? 2000: USD or Iraqi dinars?
Now, say we look at this hypothetical US bond auction today. The US has been hemorraging money to the oil nations and to China through its trade deficits; the US government through tax cuts, wars and repeal of pay as you go has run up huge deficits. Even with a trillion in pork thrown out, the US economy sucks. And the Chinese are flexing their muscles. The chinese get angry about whatever and stop buying UST.
The auction goes forward with the UST trying to sell by auction $20 billion in bonds. There are only $16 billion bid--a failed auction because 4 billion is not sold. This is a big deal, as it shows the demand for UST is WAY down. It also means the UST must raise its the interest rate on the bonds in order to create sufficient demand for its bonds. Ergo, the US must pay more interest on its debt; its harder to borrow money; the currency value of the USD is at issue, etc.
So, I think the ZH theory is this: to prevent a failed auction and the concurrent negative fall out, the UST is itself buying the bonds in order to avoid a failed auction and the problems that will bring to the US.
If this is true, it means the treasury is engaging in extreme emergency measures, being politely not forthcoming. Bad situation if correct.
The ZH wogs often argues that the UST is creating excess money supply but it seems to me that was already done when you sell the bonds in the first place and so that is really a non-issue. Seems to me that the debt is the debt whether you self-finance it or not.
In passing, the Treasury is dealing with emergencies beyond their control. Look to the US policy makers who actually caused these large debts and who enaged the US in stupid very costly wars if you want to blame a group for the problems. IMO, to deflect blame, certain folk are, very inappropriately in my view, demonizing the money policy wogs at the Fed and Treasury. Others, lets call them revolutionary outsiders, basically hate everyone involved with the US finance system.
I think you are right up until the end, where you conclude that it does not matter who is buying the debt. Yes it does! Of course it does. Because with your logic, why get the Chinese involved or anyone else for that matter!?
The problem with the Fed buying the treasuries is that he is monetizing the debt. He is creating freshly minted FRNs to pay for the bloody treasuries. The government then goes ahead and spends it. Its not the fastest form of inflation, but its inflation no matter how you dice it. He is creating money out of thin air and worse yet, the interest being paid goes to the Fed and BACK to the Treasury. Essentially the government creates money.
What this auction demonstrates is that that our treasury is relying more and more on strict debt monetization.
"Set the money presses to Warp Factor 9, Scotty!! errrr...I mean Ben!! (Dang, gotta work on that)"
Captain Barry OB-wan-kan-OB calling for more nuclear energy.....now I know why.
This auction occurred before the Fed/Tsy announced $25bln 4/22 SFP bills this afternoon. These SFP bills were expected to be announced yesterday with the regular bill cycle. Lacking SFP confirmation yesterday, the market felt that bill supply would begin to get scarce (draw downs in regular bill supply not counting SFPs start the week of March 25). Therefore, for would be primary dealers(indirect bidders), buying 1 month bills at 5.5bps appeared to be a safe bet. Most would be dealers probably shorted the WI which was trading at 5.5bps and bid aggressively. 1month bill is $8/1mm dv01 or 8k/1bln. This is considered a justifiable risk/cost to show the fed that you are capable of taking down primary dealer sized amounts in auctions. The "mystery indirect bidder" is not the fed, just market players that saw a risk free way to take down size in this auction. -CADLP
Gonna force the primary dealers to buy the 5 and 7 year notes later this week??
"The indirect bid, in particular, seems to be a fairly good proxy for foreign purchases of Treasury notes, although not Treasury bills."
Make that everybody.
Why so negative all the time? We're just doing God's work here on earth. Besides, we're saving money, we don't need security guards at Ft. Knox anymore!
I Pledge Allegiance to the treasury of the united banks of America and to bailouts for which it stands,.....
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