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You Fail at Failed Treasury Auctions
For some reason Zero Hedge is prone to take a great deal of heat (both directly radiated and reflected) whenever we opine on the (rather obvious to us) prospect that interest rates might actually (quelle surprise) rise in this environment. Today, rather than engage in "we told you so" gloating, or endure the repetitive pleadings of commentators that this or that Treasury auction was really a success if you just look a little deeper at the figures, we'll just quote Bloomberg quoting other fixed income observers on today's auction of two years, in an article "ambiguously" titled "U.S. 2-Year Yields Highest Since October After $44 Billion Sale."
Treasury two-year note yields reached the highest levels since October as an investor class that includes foreign central banks bought the least of the debt in five months at today’s record-tying $44 billion auction.
Indirect bidders purchased 34.8 percent of the notes, the lowest amount since July, and below the average for the past 10 sales of 45 percent. Treasuries of all maturities have fallen 3.6 percent this year, according to Bank of America Merrill Lynch indexes. That would be the worst performance since at least 1978, when Merrill began collecting the data.
We aren't really sure how this will be spun into a "good thing,"™ but we are sure that someone will find a way. Back to you, CNBC.
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Interest rates are going to be much higher than what people want to believe....
The reason....????
A 0% forced rate....and all the happy talk around it....
Risk is way way overpriced....
And....will be more appropriately priced when 2 year rates
are about 15%....????
Why....????
Because 2 years will be the longest term anyone will buy....
What fool is going to buy 5% long term monopoly money....????
Answer....NOBODY.....
Great question: "How to make money?". Study the USSr or find some old bastard that lived thru it. 1. Join the party and sell your soul; become an Operatchuk and work for the government. 2. Steal 3.Sell drugs 4. play poker 5. Become a pimp 6. Become a high level athlete 7. Join the military. These are your options in communism.
hey Lux it wasnt solely the govt that pissed away people's retirements. pre-2007 the govt didnt run my 401k and it didnt matter one bit. the private sector did a great job pissing away retirement funds.
Brace for Impact II?
Hi Marla. My comments are too long for a comment here.
I might have found the missing trillion needed for the Treasuries next year.
I wasn't surprised that Fannie and Freddie had their caps removed. It allows a clever way to get the 1.3 trillion in MBS off the books of the Fed and provide 900 billion in cash for Treasuries (via the Fed) from the money market funds.
I may be way off the mark, but you might like to take a look at :
http://emsjuwel.com/business/2009/12/28/fannie-freddie-and-the-namke-deb...
If you think that I might be making sense then it would be nice if you do a post here with better numbers.
thanks in advance for your consideration and all the best in the New Year from
Namke von Federlein
Interesting. It wouldn't surprise me if they tried it. Stay tuned to the news to see if they do.
I don't have any deep thoughts on this, other than I don't believe in sustainable Ponzi schemes.
Here's a click link for those who don't want to cut-n-paste:
http://emsjuwel.com/business/2009/12/28/fannie-freddie-and-the-namke-deb...
Re: the namke plan - how does this part work again:
2) once the reverse-repos are done then we can see why the money market funds would just love to own the cleaned up MBS. The Fed will start to raise interest rates providing a very nice upside to the money market funds. This is how they plan on fighting inflation and preventing another housing bubble.
So MM funds want to own longer term mortgages because rates are going to RISE ??? And have a nice UPSIDE ????
lololol
uh huh. Great idea.
It's a V recovery folks.
OK- you have it figured out- so . . .uh . . . why a V recovery?
V as in vanished.
Failed auction yadda yadda blah blah ... If you bought the market at 2:30 and sold at 3:59 you had a good day..
Plenty of gloom but no doom on the horizion for 6 months now.. WAKE UP sheeple !!!.. When Geithner says they will do anything, they meant it.
only 2 trillion to roll this year, plus another 1 trillion plus for the deficit
should be an interesting year
maybe the crowding out effect will move from the theoretical
PBS spotlights California’s public employee pension crisis
http://www.californiapensionreform.com/?p=484
A bit early for gloating imo. The ten year hasn't broken out yet. I would love to see it over 5% but I'm not holding my breath with the current pigs in power.
Off topic..sorry...but it looks like the MSM is powering up the propaganda machine on Yemen...and Kudlow says "its all good" and terrorism is what we should worry about,not the economy...sigh.....America spreads "democracy" in Yemen,2010?
The real question is: Was today another example of QuEasyGate? Was the FBR's activity today a continuation of purchasing more Treasuries, under the "Household Sector", than the self-imposed cap of $300B for quantitative easing?
So we're fucked then?
I endorse your summation.
Hmmm, Steve Cortes says the auction went "relatively well".
http://www.cnbc.com/id/15840232?video=1371569945&play=1
Please Mr. Bidnessperson wearing a tie, think for me, I can't bear to.
Everything I know I learned from the lookity box!
Treasury's Two-Year-Auction Is Solid
From the WSJ. For some reason, the WSJ is losing credibility.
don't forget Rupert bought them out.
Failed? Seriously, 2yr notes have been for the most part in 0.85-1.15% rangefor the past year with a wider range of 0.65-1.40%. What's the big deal?!
If ten years ago I had predicted that today the Treasury would auction $40B in two year notes at around 1% with total bids over $100B and somebody would hint at that as a failed auction, you would have thought I was retarded.
I wouldn't know if it "failed" or not, but something is hidden from view. It does not seem that this demand is genuine. Sprott Asset Mgt. has raised the question that the FBR has been the invisible prop for the bond market. Not only does that seem plausible, it seems the most probable answer. How could the FBR resolve this question? Submit to a full, independent audit.
+1 the Sprott article raises some disturbing questions - the rise of the "household sector" out of nowhere in 2008 to a buyer of Treasuries matching the Fed in size. Where did the money come from? It makes no sense, except as covert monetization. The fact that this is occurring means the auctions are rigged, and so it goes. . . .
CNBC spin yesterday on higher rates: we had higher rates before when the economy was doing great, so we shouldn't be afraid of higher rates since they are an indicator of health in the economy. Also, they mentioned that Apple was at its high and Amazon was trading higher sinceit sold so many Kindles. So it goes . . . .
It makes perfect sense.. Look at the collapse in loan demand.. Look at the aggregate US debt. It hasn't changed one bit. Public balancesheet is expanding jsut as private one is contracting. Banks are rolling loans off their books and replacing them with Treasuries. Makes perfect sense - 0% risk weighting, no credit-risk and steep curve. You can raise questions all you want - but you have to make an effort to look at the data and have them answered instead of jsut throwing hands in the air and mumbling about conspiracies..
This indeed is the groundwork for QE2.
When QE1 ends on April 1, 2010, interest rates will immediately spike (if they haven’t already done so by then). The Treasury and Fed also know that and are making preparations.
There are three main pieces that have to be managed to get QE2 off the ground without causing hyperinflation. The first part, announced Christmas Eve, is the lending of unlimited funds by the Treasury to the Fed. The second part – yet unannounced - is the forthcoming new Treasury financing program, or perhaps a reworked version of the Supplementary Finance Program. The SFP is issuing Treasury debt above and beyond that required to finance the operating debt. The last part, announced today, is how the Fed will finance all those Treasury purchases (giving banks an incentive to hold reserves). It is becoming obvious that the markets will never be able to finance Treasury debt on their own.
Once put together, the Fed will be able to issue an unlimited amount of money and finance the Treasury at the same time without causing the multiplier effect on the money supply that would lead to hyperinflation immediately. None the less, the new fiat money does make its way in to the economy. For example, when the Fed buys mortgages it is effectively giving borrowers new money to buy homes – which was never in the economy before. So in any event, QE2 will be inflationary.
They have it all figured out. No worries.
1. Intervention in Somalia, Iraq, Afghanistan and soon in Yemen and Iran have successfully blunted serious terrorist attacks.
Conclusion: We are safe at home and are winning (and will win) the war on terrorism.
2. Fed intervention has staved off a steep recession or depression and the economy will recover and all Fed assistance can be safely withdrawn over the next 24 months.
Conclusion: Economy is on stable ground and the return of prosperity is imminent.
3. Congress actually knows what it is doing and health care reform will actually decrease the cost and make more services more available to more people.
Conclusion: Americans will be happier and healthier than ever before.
4. Deficits and deficit spending are not hurting the economy and once it begins to grow again we can pay down the debt and keep taxes relatively low to sustain long term economic growth. In the meantime, there is enough interest in American debt to fund our deficits.
Conclusion: Rates will stay low and there will be no bond market dislocation or default by the US.
When you think about it this is what they want us to believe. All these efforts and programs are designed in our best interests as a nation and will have the desired result.
The question is, do you believe it?