Foreign Central Banks
If yesterday's 3 Year auction was far stronger than expected, then today's 5 Year auction was an absolute whopper, printing moments ago at a high yield of 1.625%, 0.5bps through the When Issued, but it was the internals that were most impressive, not so much the Bid to Cover which jumped from 2.39 to 2.58, the highest since November, but the real stunner just like in yesterday 3Y auction, was the central bank, aka Indirect, interest because while the foreign central bank bid in yesterday's 3 Year auction were the highest since 2009, today's 67.5% Indirect takedown was the strongest on record!
After today's Bill auction which once again saw rising yields at multi-month highs, supposedly due to Fed rate hike concerns, many were watching today's 2 Year auction carefully to see if rising rate pressures will put a dent in short-end maturities. The answer was a resounding no, when moments ago the Treasury sold $26 billion in 2 Year paper at a yield of just 0.69% (as a reminder the Fed's leaked staff projection forecast a FF rate of 1.26% at the end of 2016 or inside the maturity of this bond), pricing 0.8bps through the 0.698% When Issued, and suggesting there may have been another short squeeze into the auction.
"The European Central Bank has introduced secret credit lines to Bulgaria and Romania as part of a broader effort to convince foreign regulators not to pull the plug on the local subsidiaries of Greek banks," FT reports.
As we previously noted, liquidity is there when you don't need it, and it promptly disappears once it is in demand. Consider it "cocktease capitalism." If liquidity lasts longer than 4 hours, call the CFTC because you may be experiencing a spoof. Right now, the ultimate spoof is setting up as the credit default swap market collapses, and a global bond market margin call is just around the corner.
The treasury auction confusion continues. After yesterday's 5 Year auction priced well weaker than expected, despite a negative repo rate of -0.85% which has actually gotten even more negative this morning dropping to -0.9%, things looked somewhat ominous for today's final for the week issuance of $29 billion in 7 year paper. And yet, moments ago the auction came out far stronger than expected, with the Treasury pricing at 2.153%, a solid 1.2 bps through the 2.165% When Issued, suggesting a far stronger demand into the pricing deadline.
"Do investors want to own bonds at 1% or 1-2bp yield per bp of realized vol, if risk is exploding? The EGB market is at historical highs in terms of total market risk!"
A day after the 2 Year auction surprised with solid demand all around, moments ago the US Treasury issued $35 billion in 5 Year paper which also came stronger than some had expected, pricing at a yield of 1.56%, 0.6 bps through the 1.566% When Issued. Like in yesterday's auction, the yield was the highest of 2015. The Bid To Cover dipped modestly, dwon from 2.56 to 2.46, and in line with the 2.47 average.
Central bank liquidity lines like those the Fed used to bailout the world seven years ago have become a fixture of the post crisis financial system. Since 2009, China has essentially blanketed the globe with yuan liquidity lines, inking swap agreements with nearly three dozen countries with the primary goal of increasing the degree to which the renminbi is used in international trade.
Not a day passes without one clueless pundit after another appearing on TV and reading from the teleprompter like a stoned zombie that one must not fight the Fed (and central banks) and buy stocks while shorting bonds. And yet what are central banks buying? Not stocks (at least not officially in the case of the Fed; only the BOJ and the SNB admit to openly monetizing equities).
The answer: bonds.
It has gotten to where just the lack of a rout in Bunds or any other government issue is enough to activate the "bullish" outside stop hunting algo, which is probably why ES has jumped overnight in another illiquid, newsless session. Curiously, Bunds shave not sold off even though the EUR has jumped sharply by almost 100 pips overnight to a 3 month high also on no news (with some amusing acrobatics by the USDJPY alongside) traditionally a bearish indicator for the Dax and thus the S&P. Perhaps the algos are just late, or maybe the "weak dollar is good for stocks" thesis has been activated, but in any event this morning's ramp higher in the ES will continue until all upside stops are hunted down by Virtu and crushed mercilessly.
Earlier today, there was once again a massive scarcity of 3 Year underlying paper, when as the SMRA charts below show, the bond was trading the most negative in repo it has been since September: at a -1.68% rate, everyone was rushing to short ahead of today's 3 Year auction. And with the latest tumble in rates, absolutely, everyone was convinced shorting today's 3 Year auction would be easy money. And then the central banks showed up, in the form of a whopping 52.7% in Indirect Bid takedown in the just concluded auction of $24 billion in 3 Years, which also was the highest indirect bid since December 2009.
Here is more insight to the recent USD rally... And why nothing looks like it seems!
All problems, all crises, have at least one solution, if not many solutions. There is no such thing as an unwinnable scenario. Some may not be smart enough or courageous enough to see it, but the solution is always there, waiting to be discovered. The only fight that cannot be won is the fight in which the enemy makes all the rules and we foolishly abide by those rules. Life is not a game of chess, and a man can choose to be more than a pawn anytime he has the guts to do so. Collapse is already upon us; now we must decide who will determine what happens next.
NY Fed's "Plunge Protection Team" Starts Chicago Trading Floor "In Case Of Disaster Or Other Eventuality"Submitted by Tyler Durden on 04/15/2015 10:48 -0400
We have known for quite some time now that the NY Fed's market group, aka the Plunge Protection Team, is opening a second office in HFT-capital Chicago. What was not known is what is the official reasoning behind the Fed's move to be even closer to its Citadel executions arm. Overnight, courtesy of Reuters we found that the "The New York branch of the U.S. Federal Reserve, wary that a natural disaster or other eventuality could shut down its market operations as it approaches an interest rate hike, has added staff and bulked up its satellite office in Chicago."
Yesterday's 10 Year auction was impressive, but one can't say the same about the just concluded, and final for the week, 30 Year reopening auction of Cusip RK6 which saw a whopping tail 3 bps to the 2.567% When Issued, when the the High Yield priced at 2.597% (still, about 8 bps tighter than the March 30 auction). The main driver of this subpar demand was not the Bid to Cover ratio, which while very low in historical terms was unchanged from last month at 2.18%, but the collapse in the Direct bid, which took down just 7%, the first single digits Direct take down since May of 2014, and the lowest overall since the 4.9% in March of 2013. However, the Direct slack was more than eagerly sopped up by foreign central banks which took down a near record 51.3%, just shy of the all time high of 53.2%. Dealers were left with 41.8%.