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BofAML Warns Bond Bears "Don't Lose Sight Of The Bigger Picture"
As we discussed recently, the collapse in the term structure of the US Treasury bond market was/is dramatic to say the least in the last few days. While the world and their asset-gathering mainstream-media strategist 'knows' rates are going higher, BofAML's Macneil Curry warns of the term structure "don't lose sight of the bigger picture" as a break of the rising channel suggests 5s30s could drop dramatically further (and with it all hope of NIM-based levitation to financials).
Via BofAML,
US5s30s: Don’t lose sight of the bigger picture
Since October 2011, 5s30s has been locked in a well-defined rising channel, with boundaries between 252bps/195bps. In the near term, the low end of the this channel should provide significant support and likely result in a near term pause. However, taking a step back to view the bigger picture, and the 2yr range trade has the unmistakable look of a Bearish Continuation Flag.
As such one must ultimately prepare for a break of of Flag support and resumption of the long term flattening trend (which began back in Nov’10) for 146bps and eventually below.
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In other words: Hey, look over there!
What is the point of Wall Street recommendations again?
To help Wall St.
"Don't Lose Sight Of The Bigger Picture" - There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image; make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For your next life time, sit quietly and we will control all that you see and hear
Rates are distorted by the FED. how reliable are those historic charts really?
From BofAML's website: Through Global Liquidity Investment Solutions, your organization has access to a wide variety of fixed income securities and deposit products available to help maximize returns on excess working capital. Our investment specialists will work with you to understand your organization's liquidity requirements, tax situation and risk tolerances to help you develop a liquidity and investment strategy. Together with our representatives you will be able to actively manage to your organization's specific goals. Yeah, I'll bet they would be glad to relieve you muppets of some of your excess working capital. :roll:
Never ask a barber 'do I need a hair cut?'
Does that mean equity prices are currently at a long-term minimum and about to explode soon as they did in 2000 and 2006?
Yeah, cause a flattening yield curve is always good for stocks......
Besides, CNBC says the banks can't miss, easy money- they'd never lie.....
The scenario for 10 year Treasuries to go to 10% would most certainly not be buoyant economy. It would be 30% inflation.
The scenario for the 10 year Treasuries to return to south of 2% would be poor economy, particularly in Europe or a nice China/Japan war. In other words, a combo of flight to quality and general deflationary expectations.
If you expect the 10 year to go to 4% in 2014, you are celebrating the success of administration policies and a year of 5% GDP growth.
So pick your scenario.
@ C is O: Probably the most realistic reality of what going back to 2% really means for the economy. This is why it will not end well. Until then...........
Technical analysis - bullshit in .9999 purity.
the big reason they're still able to sell these worthless bonds at any term is because of the investment wonks. these people are forced to buy the bonds mostly for retirement funds and mutual funds. they are still stuck in the old formula, backed by 30 years of a sure thing that as we all know ain't what it used to be. the wonks know it too, but it would be too radical for them to do the smart thing and get out.
at this point it doesn't really matter much anyway. all paper assets will suffer terribly in the coming reset.
There is that reset perspective again.
Disaster approaches. It will not be a "reset". A reset implies a resumption of something after a big event. That's the problem with the perspective.
There isn't going to be a resumption. It will be a big disaster event, and a decline, and a further decline, and a further decline. Forever.
The easy oil is gone. There is no fix for that. Money this and that are just numbers on a screen. They can never cause the megadeath event because any such threat will be changed by decree.
yes, it will be quite a disaster, but what we should remember is that wealth doesn't disappear, it just changes hands.
Of course it disappears. A cash buyer of a house that declines 40% in price saw his weath disappear and no one got it.
It can just be erased. By decree or sometimes by random chance.
but was it real wealth to begin with? are any of our dollars real wealth? these are the type of questions we'll all be asking ourselves in the times to come, but the wise know the answers to these things now and are taking measures to avoid the devastation. however, if you are comforted by your nihilist point of view, by all means, carry on.
by random chance
That is, it could be bought by an "investment group", and rent out.
The Liar in Chief is saved (for the moment).
at what point will the US gov go pure fiat?
here is trav7777 again
''.............but I have to repeat my axiom: deflation destroys leveraged players.
The USG is the most leveraged. Therefore, deflation is an existential threat to them. Nevermind every bank, also leveraged, and all the big boyz, leveraged too. All the FIRE economy depends upon the inflation wave and they have the levers of power.
Deflation helps people with money in mattresses. I can't see their interests prevailing.
Deflation or inflation, the FRN is still a debtmoney-based instrument. So long as the future seems to hold contraction, its "worth" is in peril. The FRN's very existence is at odds with reality right now. I would not expect paper based on debt to come out of this with real worth because there simply is now no way to pay the interest.
IOW, we have to go to pure fiat at some point; our economy simply cannot back a production-based currency because we don't have the production. We cannot back it with debt or a promise to produce/pay more in the future because the future doesn't hold more, it holds less.
Therefore, I conclude that paper, debt, etc., the "way things have been" for 400 years is what is facing the crisis in confidence. Our ability to make good on the FRNs, electronic or real, faces discounting just as surely as a promissory note from a person who just lost their job and faces a balloon payment at the end of the month.
That's how I see it. Deflationists seem to think "the system" is not imperiled and I think that it clearly is for reasons I continue to articulate. I don't think a system of dependency upon a growth future can reconcile itself with a real future of contraction.''
Which is precisely why a deflationary currency would make sense if you wanted to actually empower those that save. One of the many reasons I'm glad Bitcoin exists. Thanks Trav, you really hit the nail on the head with that one.
Dang, now I wished I had recorded all those things the second coming of Jesus left behind while I had the chance.
I personally will be very sad if the 10 Year doesn't break 3.5% in 2014.
I will be sad if it doesn't break it in January.
10s, whatever. That's not the issue. It's the 5 - 30 spread. The BOND is being bid and 5s are offered.
The omnipotent FED had all but guaranteed that the taper is not tighter.
Tighter means short term rates rise.
The 5s are starting to lead the short end higher.
The short end is starting to feel the heat.
A flattener is necessary for stocks to go caput.
It is beginning. It is not tomorrow, but it is not far.
The bigger picture is that rates broke out above the two prior peaks in Nov 2010. This "bear flag" is the Fed holding a lid on the rates and, as such, the formation is just part of the pull back before rates move higher.
"TOO MUCH CONFUSION...THANK YOU VERY MUCH"
All I know is that every time I put money on shorting treasuries, they change the rules and I loose.
Big deflationary scare first to justify/enable the BIG GUNS.
3 peaks and a domed house.
it is pretty simple the assets being used for rehypothecation whether bonds gold or whatever will someday be unavailable. then someonegoes tits up. this may take awhile as the credit dole is wide open. and selling naked seems to be a endless supply of liquidity, I think JP morgans recent increase of gold in the vault is going to be used to hammer the price down again. it would be funny if someone just found a way to stand for delivery.
Bond bears do not lose sight of the fact that they will bankrupt BofAML by shorting treasuries.
Shorting TSYs has NOTHING TO DO WITH RECOVERY. It has to do with real rates bringing their ugly head over an overlevered economy.
The only way the Fed can repress rates in the short term is to increase them in the long term AT SOME POINT THERE IS AN EVENT HORIZON WHERE THE NEAR TERM MEETS THE LONG TERM. Kaboom mwahahahahaha....Mwahahahah....
A Feral Hog. In China they let the credit crunch happne so that bad borrowers are facing the music. Chinese Central bankers are smart they know one or two things about credit and money on one side VS currency on the other.
The idea of shorting the CNY is totally ludicrous.