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3 Year Bond Auction Sizzles, Provides Relief To Recent Collateral Shortage
As reported yesterday when we showed the very special rate that the 3 Year was trading in repo (-1.45%, same as today), many were looking to today's 3 Year auction to relieve some of the collateral shortage issues that have developed across various asset classes. And sure enough, following last month's abysmal 3 Year auction, today's pricing of $32 billion in 3 Year paper was like night and day compared to a month ago.
With the high yield of 0.719% stopping well through the When Issued which was trading at 0.724% at 1 PM, this was the first indication of how strong today's pricing would be.
Whether this was due to the surge in the yield over the past 2 months, or simply due to Dealers scrambling to get some paper to satisfy collateral needs, is unknown, but the Bid To Cover surging from 2.946 in June to 3.350 showed that the internal were quite solid as well. Finally, the takedown breakdown was in line with historical averages, with Dealers getting 51.5% (Trailing 12 Months at 55.0%) which however was the lowest since January - will the $16.4 billion allotted to Dealers be enough to satisfy collateral needs for one more month? Indirects got 35.6% (above the TTM average of 26.8%), and Directs stepped up, taking down 13% compared to 8.4% last month, although below the 13.0% average.
All in all, a solid auction and a good appetizer to tomorrow's just as important, and just as special (-0.85% today) 10 Year.
Look at tomorrow's 3Y repo rate to drop back to zero following today's auction, or else just like in gold, there is something seriously wrong with collateral pathways.
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So as long as we contnue to auction moar bonds, we can take care of this little collateral issue. Sounds quite bullish to me.
i demand an apology as well. how dare you make me question Fed omnipotence Mr. Chairman! monkeyhammer or die!
So, what is the Fed gonna buy if those USTs are pledged as collateral?
Primary dealers still need money to do swap payouts, hence they need to sell something to the Fed in order to get cash to do the payouts.
That is the whole point of QEs, providing cash to primary dealers so they do not default on counterparties.
So two options left:
1) Default on swap counterparties
2) Implode the repo market
which one less apocalyptic?
"which one less apocalyptic?" - This is the 800, or so, trillion dollar question...
History indicates another option;
3) Massive distraction (planned catastrophe/war).
Ignore all the eCONomic/financial shit, the game is and has always been about power and control of resources.
we tell those "Banky thingy's" here's your greenbacks...go make money now. I really fail to see the problem here.
the only way to create money is for the Fed to buy and remove collateral
Then they'll merely expand the definition of collateral.
I know BOE can do that.
I'm not sure Fed is allowed by law to do that.
anybody knows?
ekm we are presuming there is a collateral shortage taking place right now. I don't think there is.
Mind if I actually see the collateral first?
http://ftalphaville.ft.com/2013/07/05/1556162/alphachat-podcast-manmohan-singh-on-collateral-chains/
big shortage
ekm/laws
I Have some buddies who trade in those markets. I checked in with them today. They say different than that article.
To me all those articles are propoganda. Just because they agree with ekm's viewpoint does not make them any more correct than any other articles saying something different.
fair enough
question: are your buddies telling you the truth?
Yes
why is that simple answer always rejected?
collateral is whatever they say it is. we actually entertained the mindbending idea of a trillion dollar coin. Expanding the definition of collateral in comparison to that is nothing.
"why is that simple answer always rejected?" - Well, for one, TPTB around the earth must now agree upon the action. I don't think the BRICs will simply allow such actions to occur and the FRN to remain the reserve currency. Therein lies the rub. If you want to take truly idiotic/fraudulent actions, then you don't get to be the dungeon master.
Crude and the 10yr certainly seem to be indicating that a new dungeon master is being searched for.
Again, I know BOengland can do that.
Do you know whether the Fed can buy anything they want, by law?
I think they are allowed to buy only USTs and MBSs, nothing else.
But not sure.
If not, congress would have to approve the change
It didn't always include MBSs, did it? I mean, they've already expanded it.
And if they need a law, they just write one and get congress to rubber stamp it. There must be a lot of things in between MBSs and BBL that they can use as collateral.
...or all those counterparties holding swaps will simply "call it even" and wipe them out.
Such an action would be "unexpected".
But I digress, when you make the laws via your political puppets, a lot of things can happen.
The only sure thing is that only the insiders/cronies will know about it before it does. Very few will profit while everyone else is fleeced.
I am losing my fucking mind watching the road so intently and waiting for the rubber to finally hit it.
Its been years and the blink of an eye a hundred years from now.
excruciating!
Its worse when I have the fuckin TV in front of me with CNBC on...I just saw Dick Bove and Piss-on-me talk.....watching this shit can drive anyone insane.
0.72% is a damn fine juicy yield bitchez.
Pre-tax.
Look up Jesse Livermore's book.
He is quoted to say "The market can remain irrational far longer than investors can remain solvent."
read a good book or hit some youtube jazz
At the risk of looking dumb.
Can someone help me understand the collateral shortage problem?
Why would buying bonds improve the quantity or quality of collateral you hold VS the cash it takes to buy the bonds.
It is about lowering leverage ad/or margin. Collateral covers the margin requirements.
You buy a bond with cash - no impact on your leverage
You borrow money to buy a bond - you increase leverage
I still don't see it -
Unless the bond is really owned by someone else as in rehypothecated.
It's all like playing chess on a 1000000 x 1000000 board. Even when it's obvious which side will lose, the king has a LOT of room to run around to avoid and delay checkmate.
im so bummed the market has not imploded
i am sitting in my bunker long gold and short everything else
my day will come!!!!!
Short-bus 'on special'.