U.S. 2s10s / 10s30s Breaking Out

CrownThomas's picture

The treasury curve is steepening, why is anyone's guess. Doubtful that there is a major roll out of treasuries and into equities right now until the debt ceiling issues get resolved. In a normal, non-centrally planned world, this may indicate potential inflation concerns, but who knows. Maybe our man Kevin just got pissed off that he has to re-use his starbuck's cup & stopped working for the past few days.



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WhiteNight123129's picture

WHere is KITO?

Get rid of your cash fast.

GFORCE's picture

US and EUR bond holders are dead men walking. 

tango's picture

I also am convinced that in the end, the dollar will reign supreme as the last fiat currency.   All those salivating over the collapse of the dollar do not reckon with the vast international system in place and the inertia of using the dollar. Costa Rico or Uganda are not going to give up on the dollar until the very end.   Sibileau is astute in pointing out that FED policies, in spite of their actions to the contrary, inevitably push the dollar higher.

WhiteNight123129's picture

Read Eichengreen and the supreme British pound getting dethroned in 10 years. But I forgot this was then and this is now and this time is different \SARC. 

Where do you think the most trade is done in the world ? In Asia look at the amoutn of containers transiting there. Commerce is what drives the use of a currency, you can use sea shells, Silver, Gold, Fiat, tally stick whatever. If there is a problem the trading partners would do whatever is needed to trade. You can look at how Yorkshire traded with Bills of Exchange, or the Scotts used barely any Gold in XIX century yet had a very solid system or Hong-Kong which is quite solid yet not using Gold.

Gold is a go between now a declining Western Civilization,  and then , a dominant Asian block. Do not hold Gold when Yuan is used from Argentina to new Zealand. Hold the currency of the largest manufacturers and trading partner.

Chump's picture

What's your timeline?  A serious break in the supply chain will beget utter chaos in less than a week.  Dollars will take a backseat to things like eating and not being murdered in your sleep.  The dollar will indeed be the last fiat standing, but how much does that really matter if the timeframe is measured in days?

WhiteNight123129's picture

Sibileau is very bright. No doubt. Very high long rates and very high inflation go hand in hand.

Snakeeyes's picture

Both the dollar swaps and Treasury actives curves steepened over the past month. Either a sign of things improving ... or investors want more from Bernanke.


WhiteNight123129's picture

A sign of things improving would be rising premium of money market rates over fed funds without Spanish bond yield rising and inflation expectation plunging. If that is the case it means the premium comes from demand for discounting bills (money market) and Fed funds lagging that. Steeper curve is a fabrication of the Fed to force people to spend.


Stud Duck's picture

This midwestern drought is going to have a much larger effect than most realize.

The farmer is getting his after 5 decades of being kicked in the balls for over porduction,  Thomas Malthus is going to have the last laugh shortly!


WhiteNight123129's picture

Short TreasuriesBITCHEZ , I kept telling anyone that the Fed had been forcing the treasuries to go up vertically so that it would be able to pop it faster. The faster it comes the earlier we get into inflation phase. Long bond rising will seriously shake idle cash out of bed into a (virtous) cycle of bond declining, accelerating inflation, lower unemployment, higher nominal GDP (and stabilizing ratio of Debt to GDP) but higher costs and shrinking profit margins and lower PE due to rising long bonds yield. Many point to the increase costs to Gov, but rising inflation expectation will force some economic agent to spend their idle cash, therefore rising nominal GDP (but not much real one). Gov does not care about real GDP since the debt is nominal, rising GDP will do for gov. So rising interest rates, but GDP nominal rising too and nominal tax revenues rising too. THe Fed wants to avoid debt deflation and hyperinflation. Financial assets are now facing the bifurcation with real assets and are fucked.

The reason Equities were moving up along Gold was a common denominator of devaluation of currency (money printing), you shrink the denominator in measuring price (currency is denominator) everything goes up. The other thing is that while nominal rates were going down (bullish for stocsk and bonds) real rates were negative (bullish for commodities)

Going forward you will see bifurcation where nominal rates rise (bearishg for finanical assets), but inflation rises faster than nominal yield because of the stimulative effect of steep curve. So while we have knee-jerk selling in Gold now because inflation has not risen yet Bond yields have, when inflation comes, you will see Gold having a knee jerk buying because inflation rises, that is when you SELL.

So far we did not have inflation (no multiplier), we had currency debasement. Now we will see the multiplier rise and financial assets in trouble as nominal rates keep rising and rising, while inflation rises faster and nominal rates keep being negative

If you sell Gold it is because you think that the US can afford positive real rates and yet again an increase in leverage (re-leveraging).THis is stupid, US can only afford inflate away. Since rates rise first and inflation later and since printing might stop, people have knee jerk sell-off in Gold. But when the effect of rising inflation are to bee seen it will revert violently into knee jerk buying on inflation reality.

I think we inflate away from now on. When people see INFLATION STICKY as headline on New York Times, sell your Gold, at that time because we will have knee jerk buying (the most stupid phase), here we have the belly of the Gold trade. First phase is base on devluation of currency, second phase is confusion, third phase people buy on knee jerk based on reality of inflation crystallizing and Fed happy about maning to move money out of financial assets into circulation. Deleveraging is the process of spending finanical assest into circulation. We are not having a leveraging phase here.

INflation always comes with both very high nominal rates yet negative real rates (Argentina, Brazil, US in the 1970s.)

We are on that road to inflate away debt, we only had devaluation of currency so far.



LawsofPhysics's picture

Not quite.  This is not the 70's.  The earth is also now a global market of fraud.  Stop looking backwards to predict the future.  Their are two major structural problems that make any recovery in the world economy impossible.  The world has never experienced both of these problems at the same time. First, the system is clogged with debt to the point that it cannot be serviced, even with moderate growth.  Second, unless you are simply talking about pushing fucking paper, real growth requires an increase in the available energy for the production of any real good or service of real value.  World energy production has remained flat for several years now.  Moreover, the currencies are dying.  A bit more serious than simply devaluation.  Never before have so many been dying at once.

NOTHING changes until the bad debt is cleared and, more importantly, the perpertrators of the fucking fraud are put to death.  Address the moral hazard and 90% of this fixes itself.

tango's picture

Laws - the lessening energy production has far more to do with conservation, efficiency in almost every manufactured product, warmer weather and smarter grids.   It is a result of technology principally - not economics.   And the only way debt can ever be cleared is bankruptcy.   Nations and individuals will not willingly "trade" debt write-offs so the only path is more and more debt until it hits.

LawsofPhysics's picture

Correct, as 6000+ years of history shows.  The truth is treason in the empire of lies and NOTHING will really change until the supply lines break and all those paper promises (i.e. "wealth") goes to fucking zero.

hedge accordingly.

WhiteNight123129's picture

Rising inflation and rising nominal long yield always go hand in hand. One feeds the other in a feedback loop. The short end is only an indication of liquidity and this one will stay well behind inflation. 


LawsofPhysics's picture

In the past, wages actually went up.  Not this time.  -  FAIL.

WhiteNight123129's picture


Always keep in mind the difference between nominal and real.

I suspect they will rise nominally only, not in real terms. But remember the gov does not care a single bit about rising real wages.

So you have 3% wage increase nominally with 5% inflation at least. Everyone is poorer, unemployment and sub-par job increase. Fed Government and Krugman keynesian claim victory. Shitty currency and shitty economy and shitty high inflation, and bad jobs.

I never said that Argentina had rising real wages, nor Brazil. I never said that people felt great in US during the 70s.

So I never said it is good, but there are several outcome outside of curreny collapse. One of them is shitting currencies and sticky inflation with plunging real standard of living yet higher nominal GDP and lower unmployent but the jobs are shitty. Third world economics if you will.

My outcome is not very far from yours.



WhiteNight123129's picture

LawofPhysics I will stop looking backwards to predict the future when human nature changes. And yes I am talking about Fucking pushing paper, nothing real.

NOTE: The scenario I describe is one which is the best case scenario, I do not discard the possibility that you have currency dying, either way either you are fine if you own Gold, or you are the winner takes all in hte case you describe.


What scares my long Gold position is the situation of Solar (so I am long Solar actually the minor metals), Thorium, and if I could buy Petronas (which owns Lanzatech) I would! THere is a bit of room to produce biodiesel in the Amazon and cutting all the trees of the African equatorial areas. Solar is the real wild card to watch (Buffet bought some assets in that area BTW... he is a carry trade asshole Insurance float short long corporations that benefits from permanent inflation, but he is not stupid.



LawsofPhysics's picture

The flux of energy is the only thing that matters.  If you don't truly understand what this means, you shouldn't have this conversation.  There are no renewable solutions, nor nuclear solutions (be it fusion or fission - both of which require HUGE capital and resource inputs and have very real waste products) that come even close to providing the daily flux of energy (in Joules or calories) required to maintain the current population with the current living standards enjoyed by most Americans, period.  I have been involved in both bioethanol and biodiesel projects.  Collossal wastes of capital and resources, the only useful information was the knowledge gained regarding the metabolic pathways of the organisms.  The information may be useful in a few hundred years.  In the meantime, you have a growing population to deal with.  human nature is fucking irrelevant to the discussion of energy.  

We have had, and continue to have, an exponentially increasing mal-investment and mis-allocation of capital and resources.  If you don't think there are going to be some very nasty consequences of this, then good luck sir.  Common sense tells me otherwise.

WhiteNight123129's picture

2 weeks ago Palm oil traded 50 bucks below crude. Yet farmers are making fat margins still there. The difference is that it produces 2.4 metric tons of oil per hectare, hugely more productive than seed oil which only a few hundred kilos. The other form of oil seeds biodiesel are a waste of time.

All other form of edible oil are losing market share as a result. Mistry thinks we are in a bear market for Palm oil.If you cite biodiesel without mentioning palm oil than I am afraid that maybe it is not me who should not have this conversation.

Population forecasts are always wrong, and a generation is only 30 years. So you have first a large spike in commodities, which brings both first a huge spike in commodities, huge advances in technologies, and huge plunge in birth rate. Currencies suck bananas and governments go awol... What is the big deal, from South America, I can tell you people first you get big slap in the face and then you adapt.

You wait long enough, 30 years say. Maybe people die because that is usually what they do when they get old, and voila you are back to equilibrium. We have been there before, 1320-1360, seventeethn century. Once you touch the bottom  you can only go up. But we have not touched the bottom yet, agreed. Still many ways to make money.

Actually the countries which shrinking population will get out of trouble first because they are getting in trouble first.



new game's picture

simple reason is confussion created by manipulators.

markets are trying to react to multiple currency distortions with a backdrop of clif/budget bullshit outcome and yet to be determined spendfest limitations by lame tea sippers...

Cult of Criminality's picture

A lot of strange things going on this week in markets.Thats ok,still have two thirds of my silver buy to activate on command.

Appreciate it banker terrorists !

Your dollar (evil talisman) is one big piece of shit.... and in the end it will not protect you evildoers as you think it will... Evil,Its coming back to you ten fold........Your paper dollar will light the fires of the hell you are going to recieve...

Bahahahahaaaa     Ahahahaaa

Cheers and good day (Big smile)

WhiteNight123129's picture

Wait for the Fed to stop printing, Gold plunges, but curve steepens again you buy because what follows is steep inflation.


DeadFred's picture

Credit downgrade coming? You can bet your last dollar all the big boys will know about it ahead of time. Probably too soon for that to happen yet but you will see it for days before it's announced.

fonzannoon's picture

Give me a break with this. The 10yr jumped over 2% for week last winter and everyone was screaming bond bubble. Treasury shorts got roasted. History repeating.

WhiteNight123129's picture

Where is the value in treasuries, everyone complains about the non sensical level of debt yet noone has the balls to short it? Where is your downside? If Fed keeps printing Gold moves up, if it stops, Bonds move down, Gold move down first, but steeper curve means inflation down the road. This reminds me of the tech bulls of 2000 or everyone bashing Gold when it was dirt cheap and not consider the thing at all.









new game's picture

if anyone here thinks the fed is going to let this get out of control, i got some news -they are buyers of last resort.  hey, they fucking painted themselves right tight ass to the corner.

come on, do you think a princeton dr. is really that smart?

japs takin care of business, china bye-buying gold and the rest middle finger to ben as thanks for inflation.

this is getting ugly.

and, eh, pm's head faking wrong way-fight your fear off and buy...

WhiteNight123129's picture

Buy Gold when Fed stops printing because steeper curve will bring inflation holocaust, the steeper curve is the match (multiplier) that you throw in the room full of powder. Let the fireworks begin. But since steeper comes first and inflation later, people sell Gold. Hugh Hendry is correct so far we did not have inflation. We had devaluation of currency. The proof is absence of multiplier. Gold works when real rates are negative and works during devaluation. What kills is positve real rates (utterly impossible) and leveraging up cycle (which go hand in hand).


ReactionToClosedMinds's picture

finally ... could the bond balloon start to lose air?   Could the secular increasing value in bonds long-term /dropping interest rates phenomena of the last 30+ years be changing?

A lot of people want to know .... more probably than the sub-prime/FannieMae/Freddie Mac/Countrywide Mortgage fiasco offered...

If so, then a lot of new playbooks are going to be needed .... you wanna find your grandfather's Oldsmobile and see if you can get it to run .... 

tango's picture

I am meeting with my financial advisor today to discuss AGAIN the possibility of hedging treasuries.   He (advisor) is doubtful since a raise will bring a massive rise in interest debt that no one wants.   If bonds drop, he sees the FED monetizing the interest payments as well as the debt (makes sense in a crazy sort of way).  At this point I am utterly unsure as to whether the FED will EVER allow higher rates.  

Water Is Wet's picture

"you wanna find your grandfather's Oldsmobile and see if you can get it to run"

Why?  I just got a new car.