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Buy (Bonds) In June, After The Swoon?
In 2006, 2007, 2008 and 2009 we saw 10Y bond yields surge into June only to peak and turn lower aggressively; and in 2010, 2011 and 2012 we saw a 'mini rally' in yields into June that was not sustained, so, as Citi FX's Tom Fitzpatrick notes, while we regularly hear the mantra for the Equity market of "Sell in May and go away" maybe we should have one for the Bond market - "Buy in June after the swoon."
There can be no doubt that the predominant factor in rising yields, increased market volatility, turmoil in emerging markets, rising peripheral European yields etc. over recent weeks has been the Fed but Citi still believes that the mention in the past weeks of "tapering" has been a "Kite flying" exercise by the Fed with the premise being to sell 'the markets' on the idea that reducing bond purchases was a “slowing of easing”, a “tinkering” not a tightening.
It appears it is not going according to plan and we believe the Fed has got its answer as to what will happen if they announce tapering and it’s not pretty and unless they back away from this 'less easing' path, this policy mistake will have a negative feedback loop in financial markets and the economy leading to the market “easing” again and sending bond yields lower once more.
Via CitiFX,
...
So the argument from the Fed is that tapering is a slowing of the easing process rather than a tightening process. While mathematically that may be correct consumers do not borrow from mathematicians or for that matter at the “Fed funds rate”
The simple fact of the matter is that starting with the employment numbers in May combined with the tapering rhetoric from the Fed this rate has risen 71 basis (low to high) points since 01 May. If pushing mortgage rates lower is accepted to be a form of unconventional monetary easing (given we are looking to recover out of the greatest housing downturn of this generation) then rising mortgage rates have to be viewed as a tightening.
So to varying degrees we have seen a rising 10 year yield into June in the last 7 years. The most impulsive moves were seen in the four years 2006-2009. Those moves had characteristics more like what we have seen this year and in all cases we saw dramatic moves lower after a surge higher into June. Three of those four surges peaked between 11 and 13 June.
- 2006: 10 year yields surge and hit a peak of 5.25% on 28 June. That level is never again revisited that year and by December the yield had fallen to 4.40%
- 2007: 10 year yields surge and hit a peak of 5.32% on 13 June. That level is never again revisited that year and by November the yield had fallen to 4.05%
- 2008: 10 year yields surge and hit a peak of 4.27% on 13 June. That level is never again revisited that year and by December the yield had fallen to 2.03%
- 2009: 10 year yields surge and hit a peak of 4.00% on 11 June. That level is never again revisited that year and by October the yield had fallen to 3.10%
- 2010: 10 year yields were heading lower but have a short term bounce to peak at 3.42% on 03 June. That level is never again revisited that year and by October the yield had fallen to 2.33%
- 2011: 10 year yields were heading lower but have a short term bounce to peak at 3.22% on 30 June. That level is never again revisited that year and by October the yield had fallen to 1.67%
- 2012: 10 year yields were heading lower but have a short term bounce to peak at 1.73% on 11 June. A new trend low is posted at 1.38% on 25 July. The yield finishes the year at 1.75%
Bottom line the Fed is singing “Everything will be alright” while the market is singing “Hotel California” (You can check out anytime you like but you can never leave.)
Tapering will come, tightening will come but the “patient” is not yet healthy enough to take this shock just yet. To push this prescription at this point risks a relapse.
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Now we're sounding like Gary Shilling.
Of course, Bill Gross also talking up quality bonds too.
http://www.planbeconomics.com/2013/06/pimcos-gross-says-good-to-be-in-hi...
A BOND is a contract on a future (probably unborn) soul's earning power. It's future slavery. Go ahead. Buy BONDS, but know that YOU are a slave owner.
since when are slaves slave owners
Slaves are permitted to buy BONDS (own slaves).
The last 3 years we have had the run up as everyone would frontrun the announcement of QE2, Twist, and QE3.
This time around we should buy bonds with no announcement of a major fed purchase program, and in fact, a fed that is tapering?
Gotta trade the market you have, not the market you wish you had. Right now the talk is of "tapering." When Japan hits the fan or Euro sovereigns blow up again and the global macro malaise (falling corp. earnings, in particular) can no longer be ignored, THEN perhaps it's time to buy Treasuries again since the Fed will slam the pedal back to the floor as sure as the sun will rise tomorrow.
For now, it's tapering. In a few months, who knows?
Never forget the REAL reason for driving rates lower- to support profligate government spending/debts/deficits with no interest cost. Until and unless the Fed loses control (as Japan seems to be losing control), rates WILL be held "low", no matter how much QE or other "extrordinary measures" it takes. The Fed WILL step back in again every single time they are called upon.
The percentage of our government spending that is devoted to interest on the debt is STLL THE SAME AS IT WAS UNDER REAGAN. Way more debt, but at a way lower interest rate. Even a mild up-tick in the federal government's borowing costs would have a RADICAL effect on their interest expenditures. Therefore, that will not be allowed to happen. They will use every power at their disposal to prevent it and protect the regime. Until they can no longer protect it. (Beyond that comes confiscation, capital controls, wage and price controls, etc., obviously, but that's a story for another day and another thread.)
So, basically, yes, is what I think I'm saying to your question. Big-boy players have DAYS, WEEKS OR MONTHS of prior inside knowlege. If you wait for it to start happening, you'll miss most of it. Remember, tapering hasn't ACTUALLY happened yet. Just talk (jawbone talk to take some air out of the bubbles they know they are blowing). Talk can turn on a dime. What if they announce 2 weeks from now that "tapering" is being held off for a while because they're seeing "more weakness than anticipated?" Imagine THAT little bombshell hitting the markets.
I bet we have already seen the lowest yields of our lifetimes and they won't be able to cram them down again. If they break through the channel it will cause a lot of chaos.
"I thought treasuries were safe!' August, 2013
Tapering will come, tightening will come but the “patient” is not yet healthy enough to take this shock just yet. To push this prescription at this point risks a relapse.
Sure, whatever. We will be reading this exact same statement ten years from now.
Whew... for a second there I thought that was a "Tyler" statement. Did a double take...of course what would one expect to hear from Citi.
I might need to recheck my history, but cant say the path the Fed is on has ever been reversed to date. Once the printing starts outright, it doesn't end until a new currency begins.
Better than I could have said it and with fewer words. +1.
Is that you Bernanke or Krugman?
I don't believe there will be any tapering. They may be testing the waters, but more than likely they are trying to create a little fear in the 'markets' as they try to manage them. The Bernank is not going to pass a collapsing market off to Yellen. If we see anything , I believe we will see further balance sheet expansion.
the patient is dead. we are living in the weekend at bernies economy.
Get the paddles. Lets shock this fucker and get his heart beating again.
This shit is like Dickwad Cheney.....you can't kill it.....it died and went to hell a long time ago
Wells Fartgo and Chase are already enjoying the fruits of declining mortgage refis & originations at a mere 4%.
I do not understand you?
and you suppose that that will bring bonds down and not drive them through the roof? People are realizing this isnt liquidity issue its a solvency one.......
Only hope is to take the medicine we should have taken 5 yrs ago and that is the reset button. slash the giverment 50%, and stop printing.... take 90% off the dow, and the PBGC pay out all of the civil servants at 40 cents on the dollar. lifes a beach
It is not a liquidity issue until there is no bid? Right?
Right. Exactly.
Even back in 2008 GW Bush knew "this sucker's going down". Everything beyond that has been "playing for time." The Fed in 2008/2009 used to acknowlege that fact OPENLY when announcing their various "non-standard" monetary policies. Obviously, they don't any more. Nobody says it because they know we are not going to "grow our way out of this." Confidence is broken, growth has no reason to take root when debt is strangling everything and entitlement progams (at the personal and corporate level) are the only thing keeping the whole economy from tipping into outright depression.
And even this middling state of affairs will not persist. The path is obvious. Nobody is fooled. Only the timing is in dispute. So we dance while the music plays, knowing the music WILL stop at some point.
People have known its a solvency issue all along, but the name of the game has been front running the fed. A little fear in the market will send rates right back where the Bernank wants them.
No amount of medicine will save the system now... It's dead the vultures are just picking the corps clean.
Bonds? Aren't bonds debt? And if I'm not mistaken, don't bond buyers expect that the debt will be paid back? Seriously? We're still talking about this? We know for a fucking fact this debt is NOT being paid back by now, don't we? Let's be serious for like 5 seconds and consider some reality, like Japan's NIKKEI which is -5.26% just in the last hour! Maybe that's just a reason to move into bonds?! WTF is going on here?! This is stupid! Wake up call, bitchezz! Printing money doesn't pay debts!
Off topic, if Jeb Bush is the GOP nominee in 2016, I am not voting for him.
at this point calling there being a 2016 is gutsy
I have become convinced that the Fed follows rates, the market leads. Is there an effort to scare down some good prices for the pension funds?
Unraveling.
Japan is being crushed, HK down over 2%, Shanghai down over 2%. But...major Fed/ECB and BoJ USD attacks, EUR very bid. Shorting from here could be death wish. Unless this is the bigging of the end.
going long from here makes much more sense right?
going long what?
sausage festivals
I could win first place!
OP seems to think being short (assuming stox) from here is a bad idea..... Been riding EDZ for a long time, finally decently in the money.... shaping up like another nice day tomorrow gonna choke up on the wide stop as there will be a dead cat bounce one day.........
Maybe. Dow, S&P is not really correcting, the Dow is stuck between 1500 and 1550. Look at your DXY chart and the EUR. For me that is the correlation on central banks dumping USDs and keeping EUR bid to create stock supports for HFTs.
Two things:
1. We have a dip buy on oversold Asian (Japan) markets and other EMs, US markets hold supports
or
2. This is an all out panic, if central banks, more Japan is losing complete control of their bond markets it will resonate to all global bond markets. The major USD selling now could be part of that panic.
I want to see the Dow and S&P smash through their range trades, down over 2%. The we can assume the HFTs will take this lower.
In summary we could have both a bond and stock liquidation trade - which would be bad. I am leaning more towards a panic from central banks. Which would be so ironic in our centrally planned world.
Q: "Buy bonds in June, After the swoon?"
A: Lottery in June, corn be heavy soon.
what a fucktard article.... perhaps bonds are moving up because folks realize the world isnt solvent? Once that happens no amount of monetization will stop the collapse....
Really loosing respect for what ZH is printing....
this line of thinking from ZH blows me away. The last several years they have made case after case after case that we are living in an unsustainable environment with an eventual reset that is unavoidable. Yet while I can't remember them pitching stocks, except with sarcasm, lately it seems they are pitching bonds...hard.
I don't blame them for telling everyone to steer clear of stocks all this time. But i don't understand why they have decided to pitch bonds here.
Empires die at their margins first. The core is preserved to the last. US Treasuries are the core asset. They will be the last to fall.
Or maybe this is the odd year and it will all come undone this year?
After all the Japs have lost control this time...
There's a lot of wobbling going on in a large number of very big markets. Gyrations, oscillations. At some point there are so many actors going in so many contrary directions things start to spin out of control. IMO if the actors get into a positive feedback loop (or multiple loops) of reactivity we could very easily go straight off a cliff in real time with an utter inability to drag the markets back onto terra firma. One line in the sand would be if traders deplete their capital (due to being violently whip sawed) and have to start selling in order to raise funds. Selling begatting selling, wave after wave. The bond markets will lead, and it doesn't look good where they are heading.
Sell til expiry.
How do we know that nigga hiding out in Honk Kong (who can listen in on anyone including the president) doesn't have the dirt on the NYfed and now the tribe is frozen in their tracks afraid to pump /es in the middle of the night until they figure out what this nigga know ? Maybe the PPT allready hauled ass for the hills and everything you see know is just vapors and bit players trying to hang on.
So... no post on Japan totally crashing? -800 so far on the Nikkei??
healthy profit taking. All's well.
Monkeyhammered Nikkei Plummets 6% On Risk Exodus http://www.zerohedge.com/node/475190
Gonna take some heavy lifting overnight to keep Hope alive on the homefront.
Yuck.
Fire all the cannons tonight Bernank....are we are all fuct tomorrow!!!
OK...I am going to blow the whistle on a guy in the federal government.
He has admitted to drug use. He regularly uses terror and kills innocent people, US citizens, foreigners, women and children, without benefit of trial. He lies time and again without remorse. He trashes the Rule of Law and uses favoritism and cronyism in awarding government (aka taxpayer) money to businesses. He trashes the US Constitution. He runs a brewery in his basement and smokes - not a good role model for our youth.
Who do I report him to?
Nipples her very self.
Game Over! cash is king! check Mate!
Holy fuck. Japan and Hong Kong getting monkey hammered, and its early.
buy the dips
Screw you! The rich money left several weeks ago. Dumb Ass!
they move their money to where ? commodity market not moving, worldwide stock market crumble
June gloom Bitchez.
Don't most people make their housing purchases in July? Isn't it interesting that expected house purchasers on the biggest buying month of the year would coincidentally face the highest mortgage rates of the year? Maybe this is all just another way to shear the only sheep left who can still afford things.
According to these charts, it seems the best time to buy a house and take on a new mortgage would be in December. That could cut quite a few points off your costs. Correct me if I'm wrong