Very Weak 5 Year Auction Raises Speculation That Neither US Dollar Nor Treasurys Are Flight To Safety Any Longer

Tyler Durden's picture

The US Treasury completed the latest ponzi shuffling of Treasuries to Primary Dealers (who will shortly send it all back to the Fed, pocketing a few hundred million in bid/ask spreads and commissions in the process), selling $35 billion in 5 Year bonds at a 2.19% high yield, the highest since April 2010. The internals, as has lately been the case, were not pretty. The bid to cover was 2.69 compared to 2.97 previously and 2.76 LTM average. Directs took down just 7.7%, as it now becomes obvious that the "UK" is no longer gobbling up bonds, and we expect the UK-bond build up as per TIC will stop in a month or two tops. Indirects also took down less than average, as foreign banks purchased just 34.2% of the auction, compared to 41.5% on average. Which of course means that PDs had to step into save the day: at 58.2%, PDs took down the highest amount since July 2009. Lastly, the auction prices about 2 bps wide of the when issued. That we could have such a weak auction in a day when risk is surging, is a stunner. Have gold and silver (and the CHF) finally become the widely accepted new risk avoidance products, instead of the USD and the UST? If so, that is a far bigger revolution than anything happening in the Maghreb now.

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Caviar Emptor's picture

I been sayin it. yesterday the dollar failed as flight to safety in a clear break from earlier trends. Today Treasuries. 

That all spells diminished credibility for the Fed and the dollar. Dollar printing is now in the eye of the hurricane. And along with it dollar global status. 

That puts gold in the sweet spot


blindfaith's picture

actually it puts Americans between the rock and the hard place.  Unless, you are in elite 'class'.

LawsofPhysics's picture

Or well armed with several like-minded neighbors and arable land to lease for farming.


Caviar Emptor's picture

Yup. Anything dollar-denominated  will lose in real terms. Another strength of gold. 


Lieutenant Dan's picture

I bought some 5 years today. I am trying to stock up on food, water etc. in case we have an emergency. I thought it would be a good idea to secure myself some paper for fire kindle when it gets cold.

DosZap's picture

Lt Dan, Just remember not to burn it w/out a vent.

SteveNYC's picture

I think you are spot-on. Throw silver and oil in the mix, and it is game-on.

All of the money outflows from stocks are now going into PM's and commodities, not the USD like 2008. Well done, Ben.

orangedrinkandchips's picture

Hells bells, Treasuries are the furthest now from safety. Shit on a shingle is the flight to safety now. anything but the dollar or US Treasuries...with Timmy running the show...we are SOL.



tradewithdave's picture

ZeroHedge is right, but who would have ever thought that Pancakes would be the safe haven.  Crash JP Morgan Buy Silver has been co-opted as the rallying call by "Your pancakes look fine to me" in Chicopee.

Where will it stop.

Dave Harrison

RockyRacoon's picture

I junked you because your post is obviously a dashed off attempt to look pertinent with the objective of touting a blog.   Fail.

Misean's picture

Of course dollars are safe! Unlike all these other things, Benny B. says we can never run out!

Boston's picture

Tis but a scratch.

Gundlach is still correct (see Barron's this week):  if a true risk-off period begins, Treasuries will rally....hard (10 year yields to 3.0%, or below if the SHTF).

No offense, but 30-40 points down on the S&P doesn't really count.  When 300-400 points get lopped off, let's see what Treasury prices do then.

Common_Cents22's picture

The last thing they want to do is pull the plug on the stock market, but they will if they have to if the foreign crises don't do the 'flight to safety' trick.

Caviar Emptor's picture

I think the mood has changed. 

There's several factors: threat of inflation is now real with $100 oil and ags skying. So that's a poor flight to safety if you lose in real terms. 

Then there's the geopolitical risk. Events and actions around the world are pointing out the vulnerability of a dollar-denominated world for commodities. Many have been positioning themselves for the change. It's looking more credible by the week now. G20 no longer united too. 

QE is backfiring because bonds are not allowed to price inflation risk

DosZap's picture

Oils up^^, the Ags died yesterday, some serious rectal emissions after that drop.Tons of cash longs ate the big one.

Practical Irrationality's picture

Plus, why would they buy treasuries today when they can buy this fantastic dip!

Cleanclog's picture

As a former Treasury Trader for a Primary dealer, let me just say that this was really ugly.  And definitely suggests that some central banks are stepping away - not just a lack of flight to safety.  7 year tomorrow important to watch in this climate.  May go very well if TPTB rally to get us through the rest of the week . . . I wouldn't be surprised for some weekend pow wowing and pronouncements before next week if this trend continues.

JoeSexPack's picture

Yeah, we need more insider angles.

Metals I understand better than average, but on T-bills & US Gov't debt sales I could use some tips.



DosZap's picture


Thanks for the opinion, since you see fit to throw out a bone, and no meat.

Boston's picture

OK, but IF the big money really gets scared, where else is it going to go---at least in the short term?

Sure, the outlook is very bearish in the long-term.  But if a couple of $trillion wants to get out of dodge, and fast, there's really nowhere else that's as large, liquid, and reasonably safe (again ST only) as the US Treasury market.  What are you gonna do, load up on JGB's?

Cleanclog's picture

The Treas 5 year auction had an ugly tail to 2.19 when the WI was trading at 2.16 at time bids were being put in.  Then it traded as high as 2.11 before results came out. 

Something I didn't know or consider with my earlier post was the surprisingly good results for the Illinois Pension Bond auction today.  Much of those maturities were in the 5 year area and had nearly a 300+bp yield over the Treasuries.  Sovereign funds supposedly participated.  Perhaps some central banks as well.  

Arch Duke Ferdinand's picture

Across all of Asia....Within a month....Oil/Gold/Silver Will Be Sold For Food


Why War Is Merely Continuation of Politics by Other Means....


Western Canada's four Provinces are the safest location on the Planet...led by gateway city Vancouver BC...

Dr. Porkchop's picture



Home of the biggest suckers in real estate.

falak pema's picture

It puts gold there where the golden fleece lay in Colchis. We are all Argonauts now searching for it. But beware of Medea...she was a sorceress...He who finds the fleece must also accept her. You never win in life. Just ask Jason. But he had a good life until she changed it. That's gold for you. 

Scottj88's picture

The Dollar is Rolling over... examining it over the past 40 years is telling of its devaluation...


Buy Physical gold/silver

Reptil's picture

Kudos for including the (VPRO Backlight) video about Quants. (truth is stranger than fiction) One of their better documentaries. (the one about Carlyle Group is also an eyeopener, though slightly more difficult to find)

The only rally the USD can do now, is either on a QE3 or stockmarket collapse. After that the hyenas will tear up the carcass and sell the meat and intestines. (currency debates always remind me of Sir Attenborough videos about predatory animals and spooked herds)

But it needs to do that soon..

savagegoose's picture

actually u need a currency that pays the holder interest. not charges them it,

DosZap's picture

That was an Oxymoron if ever I read one.

Dr. Porkchop's picture

Stable purchasing power would be good for starters.

jkruffin's picture

A little OT but, its just more of the same out of the doomed U.S.

A buddy of mine filed bankruptcy, he just got his discharge for Chp 7 on 2/17/11 and the last two days he showed me about 8 mailers from GM and Ford offering him credit for a vehicle.  ROFLMAO

Did these dumbass CEO's not learn a thing from the last collapse?

Oh, thats right, they got bailed out so easily they didn't have to learn a thing.

Just goes to show too, that the USGov is handing these companies your personal info.

This time will be much different. Guaranteed!

DosZap's picture

Send in the clowns, there ought to be clowns...................

RockyRacoon's picture

That's typical since after declaring BK you are a "good risk" because you can't go BK every week.   Your buddy is stuck for years without the ability to wiggle out of any NEW debt.

gwar5's picture

That's going to be about it for the USD as WRC. No confidence.

"Fiat has no place to go but gold" -- Alan Greenbankistan.


RockyRacoon's picture

Santelli gives the auction a D-.

That's pretty damning from the King of the Tea Party.

haskelslocal's picture

This "reporter" is sounding mainstream... Glorifying a drop in bid to cover. Come on now, ZH is better than that.

Caviar Emptor's picture

The risk is we get an acceleration of dollar-aversion. And that would feed a vicious cycle of inflation. On key reason I keep pointing to is the ocean of dollars in foreign hands, put there through 40 years of Fed monetary policy. We may see a rush to cash those dollars in order tog et physical. That's stage one of hyperinflation

ThreeTrees's picture

Glad somebody else has said it.  I've been wondering the exact same thing for a while now.

trav7777's picture

So, I'm interested to hear from guys like B9K9 what the reaction will be if the Fed does not start soaking up more supply.

There are two choices here, print or default.  The USG cannot and will not cut enough fat from the budget to balance it.  Perhaps a substantial budget cut would spark a bid, but we'd be talking something on the order of 5-600B in cuts and that still doesn't approach balance, not by a long shot.  That's just to get us near a trillion in annual deficit.  And the compound interest problem is insoluble.

I see no way politically for the government to go austerity...they are going to have to have it forced on them.  The Fed may not wish to destroy the dollar, but it's already BEEN destroyed.  100 years of entrenched destruction can't be reversed in a couple political cycles.

Default isn't going to strengthen the dollar or UST bid either.  Neither will revolution.

Caviar Emptor's picture

Yup. And there's the haunting question: would massive austerity not simply knock down GDP? And by how much? There's a multiplier effect to the downside, first of all. But more concerning is just how much dollar printing is used to support Wall Street. You could see big capital flight and decreased investment on top of just less consumer spending. And decreasing GDP in the face of big debt is game over. 

Vernon Maxwell's picture

Go further down the rabbit hole.

Debt is either secured or it's unsecured.  In the case of the former, can the asset that collateralizes the obligation generate cash flow sufficient to pay carrying costs and principle? If not, what then? Who or what takes a haircut?  Does he who takes the haircut have the equity cushion to absorb those losses?  If not, what of his capital base?  In the case of unsecured debt, is it insured?  If not, how robust is the capital position of the creditor?  If it's insured, how solvent is the counterparty?  Many more questions than answers.

Structured finance is such that one is really only as rich as his or her debtor/insurer is solvent.  Reality always bats cleanup.

LawsofPhysics's picture

"Default isn't going to strengthen the dollar or UST bid either.  Neither will revolution."

Yeah, but the latter will certainly clear out a few folks.  "And the weak are ripped and torn away"-Suicidal Tendencies

jefftheshark's picture

War with China of either the Hot or Cold variety would resolve the issue.  We simply freeze their assets like we did with the Iranians so many years ago, force the multinationals to brings the jobs back to the States because we no longer trade with the enemy and the media makes it every American's patriotic duty to buy locally.

See?  Problem solved.


DosZap's picture

Fix Bayo's...............the dollar won't matter anymore.

If they pull QE3 off, thats when the dollars start coming home.

BIG time.

Plus the reserve currency chit, is Ova.

bogey4's picture

Seems like nothing more than a reaction to a big rally leading up to the auction and a slight bounce in equities.  5's are still cheap on the 2-5-10's fly and most likely will be bought on any backup.