Two Tension Points To Watch In T-Bills

Tyler Durden's picture

Normally Treasury Bills are not something discussed around the dinner table or hotly debated on the business news channels. As UBS notes, the fact that the Tbill market has become the focus of attention is an ominous sign, and indicates that the stalemate over the debt ceiling could have profound effects. While TED-Spreads, and financial CDS were the key indicators in 2008, now we must watch money fund flows, and Tbill forwards. In a sense, the Tbill market is the proverbial canary in a coal mine for the US financial system. The canary is not yet back in good health.

Via UBS,

Tbill rates and volatility have surged

Normally Treasury Bills are not something discussed around the dinner table or hotly debated on the business news channels. The fact that the Tbill market has become the focus of attention is an ominous sign, and indicates that the stalemate over the debt ceiling could have profound effects.

Figure 1 drives home the point regarding the surging volatility of Tbill yields. October 24 is the first Tbill maturity that follows the Treasury Department’s self declared drop-dead date for the debt ceiling. Prior to the past few weeks, the yield typically moved in a 1-2bp daily range. In the last week, the trading range has widened enormously.

Money market and reserve manager sponsorship are key to the Tbill market

Tbill yields have surged because of political risk, not a potential shift in monetary policy. We are confident that Tbill holders have shunned the shortest maturity issues because they are concerned about timing and headline risk, not over worries about ultimately being paid. Tbill buyers are not paid nearly enough to take on issuer default risk. Consequently, some of them may choose to curtail their purchases or simply avoid the Tbill market until things calm. Figure 2 shows that money market funds focusing on US government securities have nearly $1 trillion under management. If this group retreats even marginally from the Tbill market then yields could jump, or remain high.

Foreign official institutions account for about $360 billion of Tbills (Figure 3). As we noted already, we expect this group of investors to be reasonably patient. They could back away from the Tbill market to some extent. However, we expect them to have much less influence on bill prices in the near term than the money funds.

The Tbill market has become a happier place on October 10. Yields have fallen considerably, and forwards beginning in late October and through November are much less negative than they were a day or two ago. Nonetheless, some forwards are still notably negative. This pattern tells us that bill investors are still quite nervous.

The bottom line: watch money fund flows, and Tbill forwards. In a sense, the Tbill market is the proverbial canary in a coal mine for the US financial system. The canary is not yet back in good health.

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olto's picture

blindman, good morning to you, sir,

Ah, yes---Berry's wood drake and great heron-----I have been back with humans four years, now, and still have not arrived. Fourteen years in the forest was all the 'heaven' a man like myself deserves, though I need more.

More than the wood drake and great heron are the windsongs, riversongs, clouds, rocks, trees, other animal species, insect sounds and-----------------the sound of silence as the canvas for the rest of the picture of sound---

damn, I have to stop here---my eyes are beginning to mist up for what was my wonderful life

Now, as an old man back in the human context, I roll around like a marble in a cigar box-----lost half of the time---angry---laughing and trying to make our case better than it is

But you know what?

Lost in the forest all those years, the enegy of my co-residents and the sounds of life and silence changed me irreversably.

Berry's poem is beautiful, but this old man is the wood drake and the great heron---a blessed soul living in a state of grace

thanks for the opportunity to remember who this old man be

blindman's picture

the world is hungry for your poetry.
.
"Hannah Arendt (2012)"
.
and tired of the banality of evil.
.
The revolution will be composted: adventures in radical gardening
Gardening isn't all about pottering among the petunias: Ruth Jamieson on the rebel gardeners who are using plants to say something political
http://www.theguardian.com/lifeandstyle/gardening-blog/2012/jan/20/radic...
.
http://www.youtube.com/watch?v=RT9FfECB8A8
BBC's Surviving Progress (2011) HDTV
.
have a great day / life!

olto's picture

Thank you so much, blindman,

The documentary from the "Short History of Progress" articulates all that I have observed and am observing during this lifetime.

It is an amazing 88 minutes! I don't feel so alone afterwatching it because we, the little cancer cells of the machine's idea of progress are spread out all over the planet, and one-by-one----we are connecting.

A most interesting thing about this documentary is when the discussion turns to how humans like to do what other humans are doing and so, are easy to manipulate. But, for a person who believes that humans must have been extremely collaborative for most of our history in order to have become the 'dominant species', this part was very interesting because I understood that what he was explaining was the last remnant of that great human collaboration.

And, 'what goes 'round comes 'round'----so let's hope there is sufficient time.

Thanks much, again, blindman----that 88 minutes made my day!

blindman's picture

and thanks back to you.
there is so much in that presentation not
to mention the transcendent framing of the
material. whether it be the artifice of
production or the actual final act of the ape,
as if there were a difference, the final inversion
of the block that makes it stand for the
nutritional reward blows me away. art!
and it reaches beyond the reward as the
standing is the solution forgoing
any reward. we are apes ...
who said it? the ends are man's
but the means are ape's? and we
are all about the flow and means,
there being no ends.
thanks for playing !
ongoing

olto's picture

blindman,

the ape and baby ape are wonderful illustrations of what we could have been had we not taken that left turn to begin the travesty of conceptual thought

those two just knocked me out as i watched the mother play without seeming frustrated at all

and asked, myself----"Now, why can't I do that?"

there is a lot in that 88 minutes!

thanks, again

blindman's picture

given time the ape might/would have sacrificed
a bit of the fruit to balance the block,
as in a shim, to gain a complete treat !
the corresponding child, was he kept and
caged as the ape must have been. no.
what about the kids mother? how would she
have reacted if she was the subject in this
experiment? very curious i say.

blindman's picture

for the record i think huxley said
"the means are man's but the ends
are ape's." but , no matter.
.
THURSDAY, JUNE 25, 2009
Ape and Essence
A forgotten Masterpiece
http://makinapacalatxilbalba.blogspot.com/2009/06/ape-and-essence-forgot...
.
"..-And remember this," he adds: "even without synthetic glanders, even without the atomic bomb, Belial could have achieved all His purposes. A little more slowly, perhaps, but just as surely, men would have destroyed themselves by destroying the world they lived in. They couldn't escape. He had them skewered on both His horns. If they managed to wriggle off the horn of total war, they would find themselves impaled on starvation. And if they were starving, they would be tempted to resort to war. And just in case they should try to find a peaceful and rational way out of their dilemma, He had another subtler horn of self-destruction all ready for them. From the very beginning of the industrial revolution He foresaw -that men would be made so over-weeningly bumptious by the miracles of their own technology that they would soon lose all sense of reality. And that's precisely what happened. These wretched slaves of wheels and ledgers began to congratulate themselves on being the Conquerors of Nature. Conquerors of Nature, indeed! In actual fact, of course, they had. merely upset the equilibrium of Nature and were about to suffer the-consequences. just consider what they were up to during the century and a half before the Thing. Fouling —the rivers, killing off the wild animals, destroying the forests, washing the topsoil into the sea, burning up an ocean of petroleum, squandering the minerals it had taken the whole of geological time to deposit. An orgy of criminal imbecility. And they called it Progress. Progress," he repeats, "Progress! I tell you, that was to rare an invention to have been the product of any merely human mind-too fiendishly ironical!9." a.h.

Quinvarius's picture

Correct me if I am wrong, but if this money doesn't start recycling back into other maturities, the US government is screwed:

"Every week, we roll over approximately $100 billion in U.S. bills. If U.S. bond holders decided that they wanted to be repaid rather than continuing to roll-over their Treasury investments, we could unexpectedly dissipate our entire cash balance" from Oct. 17 on."

-Jack Lew