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What Does The Ever Increasing Tendered-To-Accepted Treasury Ratio Portend?
While the recent debate over just who is actually buying US Treasuries rages on, with all the attention focusing on QE and China, we decided to analyze the actual ratio of Tendered-to-Accepted for all Treasury Bonds issued in 2009 by tenor. A preliminary observation is that across virtually all classes, the linear trendline indicates a rather consistent expansion of the T/A ratio. In other words as the number of bonds Accepted remains relatively flat per any one given issue, even if they are spaced closer together courtesy of our brand spanking new multi-trillion deficit, the amount of bids "Tendered for" has actually been progressively increasing! Additionally, there seems to be a peculiar inflection point in the 2-3 Year maturities: while T/A for 2 Years has been relatively flat, the comparable R^2 for the 3 Years is 4 times as high, indicating a materially larger Tender interest at the 3 Year point of the curve, at the expense of the 2 Year.
We present the data below.
2 Year Treasuries:
3 Year Treasuries:
5 Year Treasuries:
7 Year Treasuries:
10 Year Treasuries:
30 Year Treasuries:
And here is a comparison of the various R2 by tenor for all 2009 issues.
The main question here is whether the relative Tender points of focus are indicative of where treasury market participants expect key inflation inflection points. And, furthermore, the record Tender amounts in the 3, 5 and 7 more recent auctions, could also be explained as a wholesale fleeing from the tender loving care (no pun intended) of the equity market. Cumulatively, between all tenors, as of their last respective auctions, practically half a trillion ($496 billion) was tendered, of which just $185 billion was accepted. There is thus another $310 billion that will likely continue getting tendered in future Treasury auctions (absent a dramatic change in economic climate), and probably flee equities, at least in a non-bizarro world.
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or how much may be TARP funding looking
for a home.
Investors Ask Japan MOF To Cancel 10-Yr CPI-Linked JGB Tender
http://forexdaily.org.ru/Dow_Jones/page.htm?id=339972
Who's winning the deflation/inflation argument now?
First of all with the dollar going down the proverbial shitter everyday and interest rates at practically zero only the foolish money is moving money from equities to Treasuries thinking of it as a "safe- haven". Second, a lot of it is just simply stealth Fed buying i.e. stealth monetization. One great example is how the Fed creates "reserves" for the big banks out of thin air with which they then support both equity and Treasury markets. Any wonder why both markets have been rising together? So what's the catch? Well, the longer they keep this up the further the USD will fall down (as has been happening recently). Well, the question remains "Against what?", since all other currencies are just paper bits too and their governments just as corrupt (although I doubt any country can exceed the US Government in terms of the sheer amount of criminal activity). Yup that's right - Gold.
Sorry for being new, but isn't the gold trade
dependant on maybe a future reserve currency change? And
if that's the case..our advanced democracies in the world
want a communist country with a huge amount of a "golden
shiny metal"instead of a republic/democracy that has saved
their ass many times before and has massive
nuclear submarines and bombs? I guess I'll take
it for a "trade" but I'm skeptical of what it's supposed
to imply? The QE may devalue but most nations
are doing the same...and well does china want the
dollar to crash? It can't buy enough gold? Anyway
I'm sure the trade will work regardless of rationality
right now.
Or if not right now, maybe at the end of the next dollar rally.
As of current money supply levels and asset marks, deflation reigns king. The Fed needs to expand its balance sheet greatly even yet to be able to mop up all asset losses past insolvency for the big banks. The bailouts aren't done and the next wave down in equities (which the bond market is already sniffing at) will replenish the Fed with political capital to continue bailouts. How do we know when the printing has ended and when inflation/USD destruction can truly begin? Once bank excess reserves are unsequestered/Fed stops paying interest on them. Until then, deflation reigns king.
Fine and dandy GG, but just you don't forget that in banker bizzarro world, Gold exists mainly as little bits of paper too. Lencho
'and well does china want the
dollar to crash? '
precisely.
.....................................................
"republic/democracy that has saved = their ass many times before"
=
Something on the scale of years measured in HUNDREDS.
.....................................................
Gold as a store of labor/value/wealth/capital
=
Something North of a few THOUSAND years proven.
.....................................................
To each his own, and decide for yourself.
> Something North of a few THOUSAND years proven.
The sun revolved the earth for thousands of years as well. technology renders your timelines invalid with its exponential progression path of the last hundred years.
Conclusions you can draw:
1. There is a very robust demand for UST.
2. The cash is coming from somewhere.
After that, pure speculation, but a worthy effort. Is this ratio available historically? Is it out of line?
What information is available as to the purchasers of USTs. It has become axiomatic here that the Primary Dealers (who are the first line of purchasers - correct) have been turning back a substantial portion of their purchases in FOMC operations a few days or weeks later. How is that going, and won't that end with announced end of QE, due any second now (at least by September 22). To the extent this is all QE, that is the challenge, to track how it is done. Mr. Gekko has stated on numerous occasions that QE has been done for far longer than has been announced, and I think he would agree that the USTs thereby purchased do not all appear on the Fed balance sheet but are held by other parties nominally for the Fed account.
Right now, my conclusion (despite my sense of what should be) is also that there is absolutely no evidence whatsoever that UST auctions are in danger of failing - to the contrary, they seem to be solid and quite popular. And to the extent that QE is helping to prop up asset values, that would seem to be an enduring factor which shows no signs of abating. So S&P roars on up.
More data contributing to ZH/Cognitive Dissonance Syndrome. Down is up, black is white, zero = 1.
The world continues to be crippled by the loss of value of their dollar denominated assets. QE allows those holding those assets to sell them without affecting price negatively, sort of what is happening now with HFT, no? Price discovery is avoided (or put off depending on how you want to look at it) but it also instills the impression that selling no longer carries negative consequence for value. It makes the various institutions that are doing the selling that is supported by QE (treasury or agency) dependant on this as a drug to just maintain solvency. I would say that even with QE when selling becomes a habit sooner or later it will show on value. which means that we will have the current run on us assets including treasuries show itself in prices.
And as far as I know there have been two UST auctions that would be considered failed sans mandatory direct dealer bid. Here's the one I can dig up:
http://market-ticker.org/archives/1267-US-5yr-Bond-Auction-Effectively-F...
All of this liquidity, bubble money, has to go somewhere and there appears to be a race between the equity risk trade (crappy stocks) and Treasuries issued by a government that some may perceive as having a limitless federal "overdraft".
The ending will be the same--not very pretty.
WSJ reports that a lot of 401k (pseudo-retirement gimmick) money as well as mutual fund money is now heading for treasuries creating this artificial spike in bonds. Risk aversion of the wrong kind in the bigger scheme of things eh? Unless some of these folks are really smart and exit bonds just as the NEW DEAL equity bubble implodes and get back into equities !!
To all the dollar bears here - Dollar weakness is a "temporary" shell game. There will be yet another dollar rally before its eventual collapse. An engineer's humble opinion.
i agree with this entirely. People seem to honestly think the rest of the world is just sitting by, unconcerned about continual weakening in the USD. Just look at comments from Canada and New Zealand. Mercantile countries cannot afford for their currencies to keep getting stronger (Germany, Japan, China, to name a few). Everyone is going to have to start printing or attempting their own competitive devaluations soon enough.
In NZ we have a system of checks and balances that will not allow unfettered undisclosed Govt action to devalue the NZ$.
Besides, we have paid already a tremendous pice in the 1980s after the Muldoon Govt. fall of what means for a small country to run large budget deficits , and most still remember the decade of hardship fiscal foolishness has brought.
And it will be a loosing battle...we are a small nation of less inhabitants than NY City, the level of the Kiwi and even the Aussie $ is not determined or somehow controlled by NZ or Australia but by the flows of the carry trades.
If carry was , before, sell Yen and buy Kiwi/Aussie, now is sell US and buy Kiwi/Aussie.
We will simply wait...gnawing teeth, the US$ demise, when it will not be worthed even the paper on which it is (over)printed.
Our terms of trade against Europe and Asia have not deteriorated that badly...so stuff the American consumer...he's broke anyway.
I am hoping... I just want one more shot at working the USD down one more time... my best trade all year...
Was in a Chicago (Woodfield) mall yesterday and the place was packed - had to struggle to find a parking spot. People still not spending like crazy but they are buying the "recovery" !!
Answer: Deflation, deflation, deflation. Very simple. Look at the chart I posted last nite on the "extrapolating equity & credit via the VIX" posting re M2/M3 money velocity. No green shoots there.
Prices of Real Things are up. Price of gasoline in my area is up 55% in 5 years. Gold is up 150%. Silver, 170%. Price of wheat is up 50% as far as I can tell from the historical wheat futures prices (not my area of expertise). There's only deflation of TYN (things you need) if you compare today's prices against the massive illusory price spikes of last year (otherwise known as the Great Shearing). The price of crap-nonsense stuff, such as wall(street)paper is down, but that's your fault for thinking it wasn't crap-nonsense to begin with.
Deflation would seem to be logical with a contraction of credit, but the one controlling factor in all of this is the national debt, which is threatening the government's ability to fund whatever it is that the government does. The controlling entity (call it the "federal government" if you're naively old-fashioned) cares only about one thing and that's staying in control. The debt is only sustainable if there is a default or monetization. Default will place responsibility for the misery clearly on the head of the government, probably resulting in revolution if not genocide, then devolution. Inflation will be seen as a natural phenomena, like the weather, and will allow shifting of the blame to the enemy of the day, whoever that might be, such as China, who will ungraciously stop funding our deficits. The true cause of the inflation will be unseen, the secretive backdoor monetization of debt by the federal reserve.
OT:
Compare the value of the DOW on 9/11/01 with the closing at 9/11/09.
Bricks will be shat.
Still OT:
http://farm3.static.flickr.com/2429/3913245422_63b76bb50e_o.png
this is outstanding work. this makes a great compliment to the work you did the correlation between QE, Fed banalance sheet and the ~400 handle ramp in SPX. If they are bidding for 3-5yr.'s, 1) the money the Fed put in the system has never left the system and 2) it could be an indication that the sell-side is hedging massive leverage longs in equities by putting firm capital to work in Treasuries. So, they get everybody else to chase their leveraged longs higher; meanwhile, they invest their own capital in Treasuries.
Nice.
The people that I know are executing an orderly withdrawal from stocks,
the rally be damned. These people are better than I am by a long
shot at making money.
Yeah when insiders went 16 to 1 it was obvious.
Then insiders went 30 to 1 selling versus buying and that was beating a dead horse.
Just a couple days ago it was reported that insiders are selling 60 to 1.
Hmmmm........
There is a message in here somewhere...
Uh, last I heard it's up to 95:1. WOW
I think Trim Tabs
Massive acceptance of misframing the debate; a false paradigm.
As long as the argument is successfully confined to "inflation versus deflation expectations", monetarism reigns, and brand new unbacked reams of printed tokens rolling off a printing press continue to have recognized value. As long as the possibility of a currency collapse is completely disregarded by the majority, the debate will remain one of inflation versus deflation. I acknowledge that this is exactly what is required to preserve the status quo ante.
Question: why is ZH suddenly contributing so aggressively to the preservation of this paradigm?
Yeah, the inflation-deflation debate is kinda like Republicans vs. Democrats debate - it is pretty meaningless and distracts attention from the real issues.
que?
The current thread.
This thread: http://www.zerohedge.com/content/geographical-area-united-states-time-fr...
Framing the debate.
ouch.
Just supposed to stimulate debate. 4,175 votes so far: while you may be right about the overall outcome, the process by which it is achieved will likely have to follow one of the two routes (or both with hyperdestaginflation).
"hyperdestaginflation"...I like that.
Ha, that is just terminology one-upsmanship Mr. Durden!
Hyperdestaginflationary forces are at work, eh???
I am not dissing your coverage Tyler, which is spectacular as always, but, IMHO, the deflation-inflation debate is just an attempt to label and separate issues onto convenient little boxes when the underlying issues are far more complex and involve a lot of criminal activity being performed by the "authorities".
I've thought about a currency collapse, but my feeble mind doesn't get me very far. Wheelbarrows full of cash seem unlikely. Where will people get all the money? As long as these giant businesses (aka corporations) deal in dollars a collapse seems difficult and unlikely. There are very few on this planet with any wealth that will not be hurt by a dollar collapse, even if they don't have any US dollars. I am not saying a collapse can not happen, but you definitely want to be overweight in bullets if that happens.
Wheelbarrows full of cash seem unlikely.
Mouse-clicks full of ... whatever it is. Scrip? Exchangable tokens? Credit money-thingies? The "cash explosion" precondition to hyperinflation is old paradigm. We can destroy the currency without any actual printing, though some actual printing is taking place. Any references I make to printing presses are meant to be symbolic, apologies if that wasn't clear. Physical cash , like the B&W photo of the Weimar German woman burning Papiermarks, is so 20th-century.
if money is so easily clicked into existence, can it also not be so easily clicked out of existence? fiat money goes both ways.
It cannot be clicked out of existence once it has been used to monetize something.
what if that something was also clicked into existence?
Massive acceptance of misframing the debate; a false paradigm.
Nice haiku.
ummmmm.....Thanks! I did that on purpose! Really!
:)
Another question: How come there is absolutely no spotlight on JP Morgan right now (which is effectively the Fed)? How come there is zero discussion about it's massive $82 TRILLION derivatives position comprised mostly of Interest Rate Swaps and their role in manipulating the treasury market?
Because the accepted wisdom is this: interest rate swaps netting renders them completely innocuous, benign, and downright smiley-face happy.
I'm sorry GG... did you not hear... Jamie Dimon @ JPMorganChase is "The Banker Who Saved Wallstreet"... here's a snippet:
On the morning of Sept. 18, 2008, the phone rang in Jamie Dimon's office on the 48th floor of JPMorgan Chase's New York headquarters. It was Hank Paulson, the secretary of the Treasury, who for the second time in six months had a pressing question: would Dimon be interested in acquiring the floundering investment bank Morgan Stanley—at no cost whatsoever?
http://www.newsweek.com/id/215177
Dimon is an expert at spinning negative acts into good press.
Coffee and refreshments will immediately follow the ceremony where he will receive the keys to the country... so make sure and stick around for the meet and greet.
we think the same. although you are much more articulate than i.
Oh, but you were the one that unearthed this "Dimon" on Friday night Lizzy... I just forgot to hat tip you in my frenetic rush to toss this one up...
hat tip Lizzy!
i give as good as i get.
which means i learn more on this site than i contribute. so no hat tip necessary.
"John Pierpont Morgan singlehandedly staved off a potential run on U.S. banks -- by forcing rivals to come together to save their own -- " -1907
No commentary necessary...
http://arcticbeacon.com/books/Eustace_Mullins-SECRETS_of_the_Federal_Reserve_Bank.pdf
I knew Jamie Dimon copied the idea of buying good press... now we know from where :-)
Because Jamie Dimon is considered the man that saved WS. And the administrations go to guy.
http://www.newsweek.com/id/215177/page/1
It doesn't hurt that he aslo told pandit to shut up (a fine moment) and because he is the hottest CEO in America.
US backs his (jpm) swap exposure and lets that woman give him WAMU deposit over a weekend(that's not all) when it appeared Texas Pacific was cobbling a deal to salvage their investment. was it so hard then to take the autos and fuck bondholders?
That's game, set and match. That's one party rule. Paulson, Timmy, Benny, that woman...
it doesn't matter who's sitting they ALL come from that same winning team not worthy of trust.
The looting is occurring in plain sight. Read about Argentina, and structural post-collapse corruption.
If someone doesn't mind educating me, what are the elements of the "tendered to accepted" ratio? Every time I watch Bubblevision, they are trumpeting "bid to cover" ratios on Treasury auctions of 2:1, 3:1, etc. I understand those. So who, exactly, is doing the tendering and who is doing the accepting in this case? Thanks in advance for your help.
Good overview just posted: http://www.zerohedge.com/article/who-buys-treasury-securities-auction
Does China still have approximately 2.0 trillion USD reserve? Some speculated that it is much less than that after their aggressive diversification from USD.
The primary dealers or banks must book profit from purchasing treasuries without risk to keep the loop of QE going for a period of time. Therefore, the yield of treasuries must come down incrementally.
A better picture will be evolved by the end of October, as Fed will end the QE.
They are my humble observation.
Please respond to KevinB
His question is mine as well.
My knowledge is limited to the bid to cover ratio and
segmentation by "type" of buyer - i.e. direct, indirect.
Thank you
Every hedge fund manager is so scared of stocks right now, they have one foot out the door just in case.
That's why there is a bid under Treasuries, so many are anticipating a Fall Crash, they are clamoring for AAA-rated, gilt-edged confetti as a place to hide until the storm blows over.
On top of that, you have our willing debt enablers like China and Japan mopping up by investing their cash hordes into more Treasuries, in order to jump start the oft-dismissed U.S. Consumer back into the spending game.
If you held equities that had almost doubled in less than a year (FXI, EEM) would you be inclined to take some profits and park the money in 7 or 10 year treasuries?
>>
In other words as the number of bonds Accepted remains relatively flat per any one given issue, even if they are spaced closer together courtesy of our brand spanking new multi-trillion deficit, the amount of bonds Tendered has actually been progressively increasing!
>>
I think there's a significant typo here that needs fixing.
Bonds are not tendered. Is it not bids that are are tendered and accepted or not by Treasury as the offer to buy a bond Treasury is selling?
So . . . it's not "amount of bonds Tendered". It's number of bids or amount of bids tendered for the purchase of the bonds being auctioned?
It is pretty obvious that the Tender in this context is not the classical definition of a bond buyback. We hope most readers who express an interest in this issue are sufficiently intelligent to figure this out. However, to assuage pursists, we will clarify the "tendered for" designation.
Thanks for attention to the error and the prompt fix. And no, I have no association with that bond website involved in the recent dustup. I'm nobody.
Funded debt = lower taxes than otherwise required to fund programs, and theoretically the US consumer, benefiting greatly by all of this show of largesse, automatically starts spending. . . .
With what? Credit cards and HELOCs? Don't think so. His cash reserves ala that idiot Suze Orman? What?!?!? Oh, I know - the "savings." Joe 6P is putting all of his spare cash into savings, instead of spending it. Except that Joe 6P is living from paycheck to paycheck, still sitting on a powder keg of debt, and what is called "savings" is merely a "green shoots" way of saying "not spending." The fomerly accomodative banks now having turned mean, Joe sits at home...and waits. Maybe next year I'll get a raise, or a bonus, and then . . .
Ever resilient, Joe 6P knows when his wallet is empty. And he knows when he is told by Bank of America, "no mas." So he is "savng," if you want to call it that.
I dare someone, anyone, to say something positive.
We've known for a long time now that the national export is debt and the US of A is nothing more than Lehman brothers, with better liquidity. The clock is ticking, yes. But who really wants the ponzi scheme to fail? Try getting your physical delivery on GLD when the food distribution system seizes up. The whole point of America always has been to keep the ruse going, and get your slice before the pie explodes. I mean why else did we all study finance? To save the figging world?
So I say, get with it. Life isn't fair, its not principled, (especially in our field) so lets drop the pretenses and get back to the game theory. Ask any laymen "Is this a ponzi economy?" and they say "Yes". Still they dont give a shit and they just want it to work anyway. They yearn for the days when Bernie was turning away accounts...
So with all the DXY slaughter, I'm happy the thing even has a bid. All the export-led economies want to be us, but dont want to be the main reserve currency, really, because we can barely run the global house of cards as is. We're at the top of the value chain and anything good we invent gets bootlegged before it hits the shelves. As soon as you create the concept of credit, someone has to be the net debtor. So if the rest of the world wants to subsidize it for a consumer and some free ideas, hell nothing breaks as long as we dont piss anyone off, and keep the spigot flowing ad infinitum. I don't buy the CB diversification tale one bit, China and Japan need to buy a consumer...and they know our inflated standard of living needs to come down, but slowly, slowly.
Its become too fashionable for everyone to be a bear here. Yes, The model is broken, the model sucks. The Feds are crooks, that's nothing new. Now think of someway to fix this mess short of African-style debt forgiveness, or a dollar collapse that makes me switch from Brie to Velveeta and ammunition. This is a much harder question. I challenge you.