Debt Ceiling

Treasury Raises $32 Billion In 3 Year Cash For 0.631% Yield; Indirects Highest Since August 2011

Another month, another launch of monthly bond issuance by the US Treasury which today sold its first salvo of $32 billion in 3 Year debt at a yield of 0.631%. This yield was better than the When Issued 0.638% indicating demand for the short-end of the curve is crept back after two consecutive auctions in which yields were consistently higher. However, the previously noted decline in Bid to Covers is persisting and as can be seen on the chart below appears to have peaked in the summer of 2012 and is all downhill from there. This auction's BTC of 3.214 was lower than July's 3.350 and well below the TTM average of 3.484. The internals were more impressive, however, with Directs allotted 14% of the auction and Dealers taking down 44.7% (with 3 Years no longer special in repo there was no Primary Dealer scramble to procure collateral). This meant Indirects ended up with 41.4% of the auction: this was the highest allocation to "foreigners" since the debt ceiling crisis or August 2011.

Jan Hatzius' First 2013 Mea Culpa: "Glass Half Full"

Back in late 2012, Goldman's Jan Hatzius did precisely what he did at the end of 2010: predicted that after many years of delays, the US economy would finally soar higher on the back of the reignition of the virtuous cycle driven by now endless Fed micromanagement of virtually every aspect of the economy. We mocked him in 2010 (6 months later he pulled his call following a series of embarrassing mea culpas), and did the same in 2012. So here we are, 8 months later, and this much-delayed recovery has been "delayed" again - just as we thought. Of course, once bitten by the fringe blogosphere, Jan is not willing to pull his recovery call for the second time in a row despite deteriorating GDP and employment data, and instead (like everyone else) if placing his faith with the Fed, despite five consecutive years of disappointment from St. Ben. Maybe this time it will be different... although it won't. In the meantime, from a glass fully full (which is where it was supposed to be by this time in the year), the Goldmanite has now reduced his economic assessment to half that.

Why Washington’s Happy Talk Will Not Save The U.S. Economy

Wall Street bankers, Washington politicians, economists and the media trumpet a substantial rebound in the U.S. economy, in the second half of 2013 and beyond, as a result of the Federal Reserve’s continued and open ended use of $85 billion dollars a month in quantitative easing. Learn why this is wishful thinking.  Rather than do want is necessary to solve the ongoing 2008 credit crisis, those in power stoop to public relations tricks and propaganda.

Third Day In A Row Of Early Futures Weakness Set To Give Way To Low-Volume Levitation

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.

Crashing China Got You Down? Don't Worry, There's A "Soaring" Europe For That

Plunging Chinese manufacturing and an 11 month low PMI got you down? Don't worry: there's a Europe for that, which overnight reported that manufacturing and service PMI in Germany and, don't laugh, France soared far above expectations (German Mfg and Services PMIs of 50.3 and 52.5, up from 48.6 and 50.4, and above expectations of 49.2 and 50.8; French Mfg and Services PMIs of 48.3 and 49.8, up from 47.2 and 48.4 and an 11 and 17 month high, respectively, blowing away expectations of 47.6 and 48.8). The result was a composite Eurozone Manufacturing PMI of 50.1, above 50 for the first time since February of 2012, up from 48.8 and at a 24 month high - reporting the largest monthly increase in output sunce June 2011, as well as a composite Services PMI of 49.6, up from 48.3, and an 18 month high. In other words, European Composite PMI is expanding (above 50) for the first time since January 2012.

Treasury Raises $35 Billion In Boring 2 Year Auction

If last month's 2 Year auction was all sparks and fireworks, when the yield priced at a two year high coupled with a plunging Bid To Cover, then today's issuance of $35 billion in 2 Year paper was all yawns and snoozes. Moments ago the Treasury issued another $35 billion in 2 Year near-cash equivalent bonds, at a 0.336% high yield, stopping through the When Issued 0.338% and slumping from the 0.43% in June, when the market was terrified that tapering means tightening (it does for the long-end, and for stocks but we will get there eventually), even if the Bid To Cover was barely unchanged, and at 3.08, it was only higher compared to the past two months' disastrous demand. Going further back would mean looking all the way back at 2 Year auctions from the summer of 2011, after which the BTC soared. In fact, the LTM average bid to cover is a far higher 3.61 although don't expect this to return at least no until the US has another "debt ceiling fiasco" type of event.

Somnolent Market Summary Ahead Of Bernanke's Repeat Performance

Stocks in Europe recovered from a cautious start to the trading session and gradually edged back into positive territory, though the DAX index in Germany under performed following less than impressive earnings by SAP. Company’s shares fell around 3% after the company trimmed its outlook for 2013 software revenue, blaming slowing economic growth in China. Elsewhere, Akzo Nobel shares fell 5% in early trade after the company said that its Q2 net profit almost doubled from the same period last year thanks to the sale of its North American paints division and a tax gain. Going forward, market participants will get to digest the release of the weekly jobs report, Philadelphia Fed survey for the month of July and earnings report releases from Morgan Stanley, Verizon, BlackRock and Google. Finally, today is the second day of Bernanke's semi-annual testimony.

"In Bankers We Trust" Is A Foolish Course Of Action...

It’s been said that goldfish have the shortest memory of any animal – only about three seconds. But a few years ago, scientists from Israel’s Technion Institute of Technology conducted an experiment which put to rest this erroneous myth. Based on their research, it turns out that goldfish have a memory closer to FIVE months... which seems to be quite a bit longer than most fund managers, bankers, and politicians. Their meme regarding crises, appears to be "but why should any of this matter? Those who control the system would never let things get bad." Pick up a book some time. History is full of examples of entire societies who thought the exact same thing. And yet, it happened. To throw caution to the wind and say, “In bankers we trust” is a foolish course of action… and presumes quite a bit upon the character of an entire industry that has consistently proven itself to be morally dysfunctional.



Remember The Debt Ceiling?

As Erskine Bowles notes "Everyone claims that they’re not going to let our nation default. And Lord knows we all ought to pray that they don’t. But, could it happen? You bet." But it seems the world has forgotten that between the "grand bargain' negotiations and the looming final-final debt ceiling deadline, the US fiscal situation remains troubled at best. While Washington is "only capable of focusing on one big issue at a time," dominated currently by espionage, immigration, and scandals, Bowles notes, from mid-September to mid-November the fiscal issues will be forced into the headlines and he believes there is only a 20-25% chance a deal is struck. As Stone & McCarthy notes, the Treasury will exhaust its extraordinary measures to create borrowing authority on October 31, and run out of cash on November 1.

30 Year Squeezes By With Lowest Bid To Cover Since August 2011

This week's final auction is over, in the form of a $13 billion 30 Year reopening, which like the previous 3 and 10 Years, was "good enough" but certainly nothing to write home about. The final yield of 3.660% stopped through the When Issued by 1 basis point so the market was mispricing the demand in the minutes leading up to the sale, however, the Bid to Cover of just 2.26 showed that not all was well under the sun - this was the lower BTC since August 2011, or the "debt ceiling" auction, and lower than both last month's 2.47 and the LTM average 2.57. The internals were in line with Indirects allotted 40.2%, Direct take down doubling from 8.5% to 16.3% and Dealers allocation dropping from 51.3% to 43.4%. Finally, following the past two auctions, the collateral squeeze in the bond market appears to have eased a bit on the short end with the 3 Year trading -0.02% down from -0.55% yesterday, although the 10 Year squeeze continuing still and trading special-er at -0.40% compared to -0.30% yesterday. How long until the Fed monetize all the Dealer allocated $5.6 billion in future POMOs? Keep an eye out on Cusip 912810RB6 in futures 30 year POMOs to see how much of this bond is promptly flipped back to the Fed.

10 Year Re-Re-Opening Auction Just Good Enough

Just like yesterday's 3 Year $32 billion bond auction, so today's 9-year 10-month $21 billion re-reopening of Cusip VB3 was largely much better than last month's auction, if not quite stellar, driven likely by the jump in rates, which rose from 1.81% in May, to 2.21% in June to 2.67% today, which was on top of the 2.669% When Issued, and the highest auction yield since July 2011 or right before the first debt ceiling crisis. Today's Bid To Cover, while better than last month's ugly 2.53, was still the second worst since August's 2.49. Finally, the internals were uninspiring, with Dealers taking down $9.5 billion of the precious collateral (10 Year was once again special today at -0.30%) or 45.2% of the total meaning Bernanke can proceed to monetize another $10 or so billion in the 15 Year range for one more month, slightly higher than the LTM average, while Indirects left with 38.6% (in light with the average), and Directs got 16.3% of the auction. Altogether a forgettable auction that was just good enough to relieve the now monthly collateral shortage that gets worst just before auctions.

Obamacare Delayed By One Year: What Does It Mean? 6 Questions And Answers

Confused by last night's bombshell white flag of defeat by the Obama administration which delayed the implementation of the employer mandate, aka the "shared-responsibility rules" by one year until 2015 derailing the public education campaign that the rollout of Obamacare was set to take place in October? Then the following list of 6 questions and answers from Politico analyzing the ins and out of the decision is for you.