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Unreported Bedlam In Treasuries Signals Massive Panic
Courtesy of Lee Adler of the Wall Street Examiner
The following is an extended excerpt from the Wall Street Examiner Professional Edition weekly Treasury update.
Last week was a light auction week with a net of just $3 billion in new supply settling on Thursday. That took the pressure off stock and bond prices. The fact that neither market could mount a sustained rally suggests that markets are weak. Stocks and bonds gyrated wildly but in the end remained in a tight range, in spite of all the bullish ballyhoo in the media. You would have thought that the Europeans saved the world on Friday. I don't think so, and within the data there's plenty of reason to continue to be concerned, if not scared shitless.
Withholding tax collections remain weak and the government had to raise $9 billion (11%) more than forecast last week. Next week the overshoot will be around $13 billion. That means that the economy is significantly weaker than government forecasters had foreseen just 5 weeks ago when these estimates were issued. The clues were available in the data at that time and I correctly guessed that the auctions would begin to balloon in size.
At the same time, foreign central bank purchases of Treasures are falling off a cliff again. But the markets aren't paying attention or have not noticed these negatives because they have not had to. Massive tidal waves of panic capital flight have been overwhelming the Treasury market in never before seen numbers. The indirect bid tendered on the 4 week bill last week was a mind blowing $61.8 billion, or 5 to 10 times the norm! Even more startling, Primary Dealers (PDs) bid $268 billion on that issue. That's over a quarter TRILLION! One third of the PDs are foreign banks. Seven of them are European banks. Is something rotten in Denmark, Brussels, Rome, and Paris? You bet your bippy.
Notably, the panic buying was limited to the 4 week bill. The indirect bid was weak on the 13 and 26 week bills. This is short term cash looking for a safe place to park, not long term investable funds. It remains to be seen if this panic will slosh over into longer term Treasuries. With the 10 year at a major inflection point near a yield of 2.10, the big week of auctions ahead could provide a watershed moment. If the 10 year moves above 2.10, the wheels could be coming off, with untold chaos immediately ahead. On the other hand a drop back toward the lows might buy a little more time, but not much else.
If yields do move above 2.10, the other thing to watch is whether stocks rally with that move or begin to decouple from the lockstep risk on/risk off perception where falling yields signal risk off and falling stock prices, and vice versa.
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i think it's looking good out there ...no need to panic just yet ...Trichet will probably come out of retirement and save us all (apparently again)
Look in guuud
We are conditioned to believe (bears and bulls) that when there is panic in the markets the yield on US debt goes down (flight to safety). Maybe this is the "fact" that will fail one day? I think the only reason that the long bonds have stayed up so far is that large funds can lever up and buy these to effectively increase the yield using cheap short term money compliments of the Fed (buy 10 bonds at 2% and get a 20% yield using borrowed money at almost 0%). One of these days these highly levered entities will get spooked and dump those longer term treasuries to avoid a capital loss....and move into very short term bonds. That will overwhelm the Fed and operation twist and the long bonds could collapse and long rates surge?
Big question is what will spook these highly leveraged specs? I think it will be when our large creditors get in big trouble and have to start selling (maybe China has to do a massive bail out of its banks).
Fed will just print more if the yields on Treasuries rise by any measurable amount:
You're traveling through another dimension,
a dimension not only of print and QE but of deception.
A journey into a disasterous land where no boundaries exists.
That's the signpost up ahead - your next stop, the Hyperinflation Zone!
Has anyone caught the tidbit where the Tax income from paychecks continue to weaken?
That's a "tell" if there ever was one...and weakening with seasonal hiring in retail for Consumermas.
The Treasury will have lots of 4 week cash with which to purchse 30 year European notes!
Nonsense Ilene! As long as Europe is in the crapper The US 10 year will stay under 2.10 or a high of 2.30! in fact when the S&P downgrades some Euro nations and banks this week, we will make another run down to 1.90! Panic is not going to settle in the US bond market for a long time as flight to "safety" money continues to flow here. Pick a better panic topic next time, maybe how fat Kim Khardashians arse is getting since her annulment!
Right, there's nothing unusual going on in the market so you can expect everything to keep going as it has before. <sarcasm on> Treasuries are NOT safe, they are just the current winner in the "Least Ugly" pageant. Bookmark your comment and take a look at it a year from now after your face has been ripped off. <sarcasm off>
2.10 sounds like a countdown.... 2.....1.....0....kaboom
'If the 10 year moves above 2.10, the wheels could be coming off.'
TILT! This conclusion is opposite to what the chart shows. In panics -- such as 4Q 2008 and 3Q 2011 -- the 10-year yield plunged. When fear receded (such as 2Q 2009), the yield popped back toward normal levels.
If the euro cracks up, the yield is likely to plunge well under 2.0% on safe-haven demand. Whereas a sustained rise above 2.10% would imply 'buying a little time.'
Yeah. I am seeing it the same way you are.
So, I don't get the point of the warning...other than there's little demand for the 10 yr. right NOW.
Your logic comes from a time when debt levels were sustainable and treasuries really were a safe bet. The event horizon may be close. Have we crossed it already is the question. Long term treasuries are not safe. I doubt the US will follow Greece but they could follow Italy. If confidence goes the only recouse will be for the Fed to backstop rates by buying everything. They don't have the political cover (yet) to do that.
I understand what you're saying BIG PICTURE wise. I don't think his so-called warning was issued within that framework. It was more conventional...and therefore didn't seem to make sense.
>>>If confidence goes the only recouse will be for the Fed to backstop rates by buying everything. They don't have the political cover (yet) to do that.<<<
He who collapses last "wins"...so to speak.
But, yes, when it all comes unhinged, the only safe place will be hiding under your boxes of PMs. I am hoping they provide some bullet-stopping capability.
So I think I've got it figured: As the 'jobless recovery drags on the banksters get my house and my savings in treasuries through stealth inflation and the insiders get my equity in stocks by dilution and excessive bonuses and other slight of hand as in MF type shenanigans'. Then of course there is that whole shorting of PM's and their stocks thing.
Do I have it about right ilene?
Someone has to pay for the vacation homes in Aspen and the Hamptons. If they can't make money by earning it, well...........
Hmmm, if there were only something you could buy to defend your home from burglaries. If there were only something that you could buy as a store of wealth that the bankers couldn't print. Hmmm.
Ahhh, this is a bunch of BS. Everything's going to be fine. I heard on the news that they bailed out the Euro on Fri and it's all ok now.
/sarc
Hair of the dog.....
No really, some frog guy this mourning reckoned they're all stuffed again ... cheque is in the mail stuff ... gone dippy.
That is an interesting slip.
- Ned
quite deliberate
My name is Freud.... not Ned.