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Treasury Yields Spike To New 14 Month Highs
30Y rates are up 4bps and 10Y rates up 5bps as a combination of MBS convexity hedging, Taper chatter, and growth hopiness flutter across the bond market. This has backed 10Y and 30Y rates up to their highest since April 2012 - getting close to some significant support/resistance from the last few years. Mortgage spreads have stabilized up here at their highest since July (around 83bps) but just as a delicate reminder, the last time bond yields spiked to this degree, equities began to wonder just what was going on? With so much of the investing public having bought bond-like-stocks at the behest of every talking head and asset-gatherer under-the-sun, we wonder at what point do the arguments about a great rotation from bonds to stocks (since gosh, 10Y bond prices are down 3% in the last month) turn to a rotation from bond-like-stocks to bond-like-bonds...
Or more simply, the market's (or the Fed's) realization that 'normalizing' rates here will crush the economy as interest expense surges (think Japan...)
Charts: Bloomberg
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Fire Sale!
And 10 year now up to 2.23%
http://www.marketwatch.com/investing/bond/10_year
As bond yields continue to rise, the question is why anyone would invest in a continually declining asset class.
You mean like Gold? ... Silver?
There is a difference between an asset declining due to fundamentals and one that is manipulated down through the futures market.
There are physical gold and silver shortages worldwide due to market demand yet the price is repeatedly slammed by the futures market.
Let's see how much market demand (not c.b. demand) there is for bonds as yields continue to rise.
Pinto,
Could you tell us which assets are currently not being manipulated?
Point is manipulations always fail.
Bonds are being manipulated up in price.
Gold and silver are being manipulated down in price.
With a long-term view, invest in the ones that go up when this manipulation inevitably fails.
You can play in the others.
Just checked. All the ounces are still there and the purchasing power is as strong as ever.
I never seem to have trouble turning it into a lot of the "fiat du jour" either, I wonder why...
lack of assets. one could buy gold but they need so manny assets to cover the books that even all the gold in the world doesn't cut it.
That's why they hate gold. if one bank would do it, it would force others to do the same and that would be a dance for chairs.
and only governments can offer it by putting their citizens for sale to let the banks buy those assets.
YOU SIR.... ARE 0,00000000112% OF A ASSET WHICH PAYS FOR A BANKERS BONUS.
Either/Or
- Ben "Yogi" Bernankeocletian
p.s. - It's actually a fun exercise to try and pin precise yields on treasury notes AND bonds that would concern ***cough***-warrant aggressive intervention-***cough*** Commodus Bernankioletian.
Yo, look who's back!
Peace and Aloha brah.
Likewise,BoP.
ok its on and crackin
my guess is that this week if not by the EOD we will get an announcement that the fed is going to buy more treasuries. black swan time
I agree. Fed needs to protect bonds or the shtf.
Inconsistent... If the FED has the ability to control the yield, then it can do so by virtue of purchases (direct/indirect) or through refraining from the same. In short, either the market exists or it doesn't... The fact that the FED would play up tapering and disseminate this through the usual MSM channels should tell you all you need to know. There are a myriad of reasons for doing so, but the simplest is maintenance of the diminishing returns of monetary policy... in this case, that means ripping the face off some of the front runners (those in the club getting the heads up of course).
But there isn't ANY volume at the long end of the curve that they can buy up (and thereby drive down the yield) without changing their policy.
TIPs up, T rates up MBS prices DOWN. Ben must be sweating.
http://confoundedinterest.wordpress.com/2013/06/10/sorpresa-treasurytips-rates-spike-agency-mbs-prices-continue-slide/
Tick tock motherfuckers...
Best guess, 2.25 on the ten year and shit gets ugly. Thoughts? Any bond traders out there?
I don't think it's bond yield per se that matter or even debt service.
It's about all interest rate derivatives linked to low yields, IMO
I still say interest rates can't go parabolic until the Fed not only stops buying, but divests.
So how do they do that? My guess:
1. Europe implodes / stock market meltdown drives US bond yields negative and bond values through the roof;
2. Fed and US government announced "Patriot Investment Program" whereby all pension plans / 401K's are required to invest a minimum amount of their portfolio in new 100 year 3.50% bonds to ensure "adequate" returns.
3. Proceeds from new bond issue pays off the Fed (ie. the QE "exit");
4. Hyperinflation;
5. Fed announces new QE
Possible.
However, as to forcing people to buy bonds with their savings, do not forget that there are about 300 million guns in USA, but almost none in Europe.
Politicians and Fed members care about their lives, for sure.
An angry mob always and at any times wants blood.
many financial products have been designed to automatically buy treasuries if something ever causes stawks to drop. If that fails we see they locked the money market doors.
They know what's coming.
Wow, wow, wow. I did not know that.
Thx a lot.
So, what happens if there is shortage of treasuries?
Do they AUTOMATICALLY sell stocks?
The cheats and moochers fear the guns, yes, but they fear the Galts more.
They will have the IRS enforce it..just like Obamacare...
Total bullshite claiming there 'almost no' guns in Europe
Why do Americans believe such nonsense ? Does it come with the other lie that the USA is a 'free' country ?
Try something like 100 million privately owned handguns, shotguns and rifles in Europe
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And besides our guns, we are much better than Americans at demonstrations, riots, civil disobedience, strikes and general strikes, and bringing down governments
We do not have giant American-style prison gulags making people afraid. Almost no one is in jail here. There is little fear of malicious arrests, courts, judges or lawyers
USA jails 1 out of 140 ... in Continental Europe it is 1 out of 1000
So Europeans hit the streets ... Americans stay at home and vent on the internet but otherwise pretty much cower in fear of being arrested and jailed for endless years in the slave-labour gulag with the other 2.3 million American prisoners
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Americans are rolling over and allowing gun confiscation when the cops come (Katrina, Boston) ... guns are a LAST RESORT, you pull a gun in the US and you are facing DEATH or JAIL UNTIL YOU ARE OLD, and so far there seems little evidence Americans are brave enough to use those guns
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We have shooting clubs here in Brussels, where people like myself enjoy shooting .45 pistols etc. - Great American gun designer John Browning died in Belgium, while working on manufacturing guns here
In our little Belgium: 2 million civilian privately owned handguns, shotguns, rifles
Germany has 25 million civilian privately owned handguns, shotguns, rifles
France: 19 million civilian privately owned handguns, shotguns, rifles ... And so on.
We do not carry them around, or have as high gun ownership rates as in the US, but we have enough.
Yes, the crazy UK Brits confiscated all privately owned handguns in the 1990s - But they are extremists, suffering from the Anglo-American over-legalism disease.
It is not like that on the Continent. Here we know the Nazis can come back, older people here still remember the last time the Nazis were occupying when they were children
Facts of gun ownership and policies in countries around the world:
http://www.gunpolicy.org/
statistics US over 400 million guns, or 1 gun per person... europe 1 gun for every 5 people. drastically less.
Pull a gun in the US and you are facing death or Jail.... I assume you just missed the SARC tag....?
In Europe you dont have the minority issues we have, as you are afraid to lock up the fellows from North Africa, for fear of offending them. Other than that a few gypsy's Adolf missed you have no issue other than domestic trash which we also have.
Now compare the dole per person in europe to that in America and you will find out how you have bought peace. When the bennies run out on either side of the ocean, you will see why gun ownership is so high here, and why the English want their guns back...
And besides our guns, we are much better than Americans at demonstrations, riots, civil disobedience, strikes and general strikes, and bringing down governments.
I think you have more frequent, escalated riots/protests... but I'm not sure they're any more successful than sitting at home watching reality tv.
We do not have giant American-style prison gulags making people afraid. Almost no one is in jail here. There is little fear of malicious arrests, courts, judges or lawyers. USA jails 1 out of 140 ... in Continental Europe it is 1 out of 1000. So Europeans hit the streets ... Americans stay at home and vent on the internet but otherwise pretty much cower in fear of being arrested and jailed for endless years in the slave-labour gulag with the other 2.3 million American prisoners.
Well... you have to read between the lines on the U.S. prison industry... you can't say EVERYONE is in fear of jail... you clearly don't understand its purpose. Let me fill you in a bit... the largest swath of the prison population are persons who were otherwise wards of the state... You have to think of it as an extension of the welfare program... It's nothing more than keeping poor people on a treadmill and out of the hair and out of sight of the middle class and to ensure that there is no upward socioeconomic mobility. No alarms, no surpises. Do you think J6P, wage earner, working class guy is really scared of going to prison? Not so much...
PS, before you get too indignant talking about all the european old timers that remember ww2... don't forget the ones on this side of the pond that have every bit as good of a memory. (you're welcome btw).
Last week Fonz provided information and a link that showed some 401K's are already subject to that demand. Its being done already.
EDIT NM there's Fonz.
Bring it, Bernanke, you fucker. You're running out of shit to buy!
Check mortgage rates, 10 year runs half a percent and mortgages dont move.... xplain that one.......
Well then, LoP. . .it appears we will find out in short order. It appears we have been in a rush to get there over the last 3 weeks. I do not know enough to venture a guess why.
Any entity (government, bank, corporation, partnership, individual) that requires a sustained sub-2% 10-year UST to survive is effectively worthless.
I was thinking 2.30 and shit hits the fan, but in this new normal almost anything can happen and it's no big deal.
No, I don't know any bawnd traders myself.
I've heard 2.4 is the magic number... not my bag though.
The classical writing are great in this respect.
Actually, rising long bond rates (not short term which are a different thing) mean higher cost for rent, for leases, which has passed through into the real economy. At the same time the curve goes not more flatter but steeper, the guys shorting the bond market are kicking the idle cash out of bed by making the curve steeper.
As long as the curve gets flatter and flatter you get stuck in debt overhang (Japan), but if the bond rates go to extreme low and then are pushed up higher through a variety of means, i.e. excessive printing, jawboning and other psychological phenomena, you invert the preference for cash and bonds versus anything else (any stuff like Dalio says), you make rents and leases more expensive and that is passed into the real economy,.
So the shock on the long bond is what was necessary to kickstart inflation. Bonds right now have positive rates but the impact of the rate shock is to move cash out of idlness...
NOw the funny thing is that this shock initially looks a bit deflationary as it makes the bonds yield higher, this is what happened in Japan with teh spike at 1%, but that is transitory. That second round effect abates are more money moves out of idless. (I am not currency generally, which can be backed by either credit or base money, I am talking about the base money increasing backing deposits -- excess reserves --). So people sell their bonds and spend their currency deposits which is backed by base money, which equivalent to base money moving in the circulation.
So what follows say in 18 months is the beginning of stagflation.
always enjoy your posts. what do you think goes first, USA or Japan? still shorting bonds through ETF's?
I don't see how you tie bonds to rents. Would you kindly extend your thesis to describe that part further?
Regardless, there's no escaping the liquidity trap (we now have a global, coordinated tsunami of liquidity that's created a liquidity black hole).
None other than the number 1 post-neo-Keynes revisionist, Paul "MoarAlwaysMoar" Krugman, actually expressly conceded this in one of his latest "opinion" pieces, when he stated that just because asinine & untested monetary policy hasn't and isn't working to defeat the liquity black hole doesn't mean MOAR of it shouldn't be applied.
What he won't admit in between his smarmy emails to Joe Wieselthal (whereby he laughs at the plebes and his cult-of-personality/Jonestown-like followers in stating he doesn't understand why billionaires are complaining about Bernanke's E-Z fiat policies that are further enrichening them at the expense of the vast majority of the world's citizens) is that MOAR of the MOAR he has and always will advocate (i.e. print credit/debt instruments with reckless abandon and with breakneck acceleration) feeds the liquidity black hole.
i believe you are referring to the "Minsky Singularity".
What are people with such holdings spending it on? Are they consuming more or just forced to spend more in order to maintain? Isn't it commonly known that the money just goes from one asset class into another asset class especially in this non-growth environment? Who has a desire to spend, invest and consume when the paycheques could stop coming as early as tomorrow?
Agree
Ammunition
hey whitenight, you did call it.............kudos to you..................
What if people do not spend the currency?
Do you think they are spending the currency?
what follows is the beginning of stagflation.... is this post 3 years old? just because they have junked the market basket doesnt mean we dont have stagflation now....
Also you are backwards on bonds creating inflation. Higher bond means the cost of money is supposed to rise to the public, it hasnt yet. When mortgages rise the bottom will drop out of housing again..... it actually will trigger a deflationary spiral not an inflationary one. The assumption you are making that the number of people who will carry a 30 yr note at 4% versus 3%, that is a 33% increase in the monthly nut..... Absurd. The price of housing will simply collapse to match the monthly payment.... Some folks got in under ARMs and all of those folks will backfloat........
A minor nit: The increase from 3% to 4% wouldn't result in a 33% increase to the entire monthly nut -- it would be significantly less because the increase only affects the interest portion of the payment. Still, I agree that the housing market's house of cards is extremely dependent on low interest rates.
laws...if the sentiment is positive for yield increases.....that its occurring because of growth..stocks.......tapering....blah...blah.......i dont see how it could be ugly.........these increases are occurring with the strict oversight of the fed.......no way this is out of their hands right now..........this isnt a yield rise due to fear....................................i see that as a big difference.......
I see two problems;
1) There have to be treasuries available to purchase (betting on a 50-100 year bond to be introduced)
2) The rest of the world will not allow the Fed to be the only bidder, they will drop the dollar (and already are).
Thanks for all the insight and comments.
It's not a yield rise out of fear, and it's not under strict Fed control.
Reason: Because for the first time all CBs are not cooperating. Japan is off the reservation, seeking to create $10,000 Camrys that will destroy GM.
Period.
Japan is what is driving the yield up. It won't last.
"Japan is what is driving the yield up. It won't last." - good hypothesis, why won't it last? When will it stop, so we all know how to trade it? please expand a bit.
I got a haircut on Saturday. The hair dresser asked how I'd like my sideburns "tapered".
Go figure. Tapering is actually a term often used to describe the practise of cutting hair.
There is the hidden agenda. When "tapering" starts, there will be haircuts.
FWIW
But what is tapered can grow back if you have healthy hair?
No?
It requires repeated tapering over the lifespan of a human being. They're always a couple steps ahead of us and will have a plan for the re-grow, trust me.
Unless they cut debt, there cannot be growth. That is what this whole exercise is about. The big debt cuts are still ahead of us. Debt cuts are not the same as debt forgiveness. The beast always wants to have her cake and eat it too.
To the Moon, Alice!!!!
Stocks will now turn mysteriously weak, driving flows back to the Ts pushing yields back down.
The taper stuff is # of T bonds bought.
Why has it not occurred to people that Ben can buy fewer, but overpay for each? That would drive yields down.
FB +5% on news of supplying all user data to the people that run Al-Qaeda.
From 2.75% to 3.25% which is a 20% upward move means an increase in the amount of QE has to be forthcoming.
Sure and the budget deficit rises again, which is likely to occur later this year. FED knows this, so no taper and likley dovish speak next week. This means buy PM's now!
That's presumptuous... This blip up in rates is allegedly based upon the dreaded tapering jawboning... do you need to add more QE or do you just need to explain that there will be no taper? You're dealing with really, really complex issues that are as qualitative as quantitative... the ability to manipulate perception can have every bit as much, if not more, impact on yields than the actual dollar outlays...
Ok genius, perception can be presumed.
This is bad news for the liberal that thinks that the printing press is the answer to all economic woes! It will surly slow the ability to tax the daylights out of the public which is where the democrats have been getting the influence for the past 75 years.
http://www.investmentcontrarians.com/recession/who-really-benefits-from-inflation-and-why-youre-not-wealthier/2315/It's all good. S&P just upgraded our outlook to stable. Rally on bitchez!
Watching movie 'Runaway Train' right now, very fitting it seems.
Through manipulation the Fed PhD's are laughing at the muppets.
Only thing that puts fear into them is the US dollar spiraling downward and crashing.
I still think we can go higher. Maybe up to 2.75% on the 10yr. As long as very short term yields stay low this is not an issue of the U.S financing it's debt.
The best part is if rates are that high in august while bernanke is at his nephew's tball game during jackson hole.
something nasty is going to come along and send us all running back to treasuries, and it will be nasty.
Well, I'll never buy a treasury and I don't know anyone who does own bonds so that part is just them flailing their arms to me. They're going to panic people into stowks, then back into bawnds, then stawks again....ok whatever.
the mattress looks pretty good to me
Does anyone know what will likely happen if the entire nation of France suddenly sunk by 1000 meters compared to its neighbors?
Remember the FED has duration risk which puts capital account at risk should long rates rise that much more. Perhaps they'll do Operation Reverse TWIST, flatten the curve and Japan for 20!
OOOOPS!
You would have to be real foolish to buy or hold stocks at a dividend yield of 2% when 10yr gov bonds pay 2.75%. Much like when bonds paid 10% some 30 years ago.
Doubtful they ever get there, as the repricing of everything in the interest rate spectrum (here and abroad) would cause massive losses that would force players to put up more collateral - and we all know that treasuries are the king of collateral. The Fed would have to be way to stupid and would look way to stupid - remember that they tried to con us all on the chief benefit of QE being more affordable housing. A double whammy of higher housing prices and higher mortgage interest would cause even more damage to the horrendous reputation of the Fed...they need to keep the impression that they are doing the "right" thing.
Much more likely that a top has been put in place for equities and risk in general. You can't have risk assets above or close to 2 standard deviations from their 2 year average when there is no growth to be had worldwide. Emerging markets are tanking. Copper wants to break down.
If the housing market is stalling (and prices dropping) at 4.25% mortgage rates (that is, 4.25% for the tip top prime people...other Plebians in the 5.5% to 7.5% or higher ranges), just wait until mortgage rates soar to 6% (or higher).
Call me when it reaches 6-7%...
BTFD