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Strong 30 Year Reopening Concludes Treasury Auctions For The Week
If yesterday's 10 Year auction was a little on the weak side, stopping through the When Issued by 0.2 bps, there were no such problems for today's last of the week 29-year 10-month reopening auction, which just priced $13 billion of the previously issued CUSIP RD2, at a high yield of 3.899%, through the 3.906% WI. The strength was not only in the pricing, but the Bid to Cover as well, which came at 2.57, above last month's 2.35, and also above the 12 month trailing average of 2.45. Finally, the internals were strong as well, with Dealers taking down 38.1%, the lowest since October's 35.5%, leaving 44.4% for Indirects, above the 38.6% average, if a tad below last month's 46.0%, and Directs holding 17.5% of the final allotment, up from 12.5%, and above the 15.9% TTM average. As a result of the strong auction, the kneejerk reaction in the Ultra was a 10 tick higher move from 137.07 to 137.17, and also helped push the entire jittery complex higher.
Of note: as in yesterday's 10 Year reopening, which had never been bid in recent POMOs, so no dealers had sold the RD2 CUSIP to the Fed on recent occasions. Now that they have $5 billion more of long-dated paper which even Bill Gross is shorting, expect this to change rather quickly.
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Not really a big change from the last auction, now sure how this equates with a "strong" auction. Bid to cover is good, but doesn't really change much from the debt-servicing standpoint. Ah fuck it...
time to load up on PTRAX and let Mr. Gross worry about it...
I’m loading a lot of data plus my thoughts based on it…read (or not) at your peril.
I’ve previously posted this first portion…so skip if you’ve already seen but the data sets the stage for assertions below.
PART 1
Take a gander at who’s bought all that new Treasury supply…not just the Fed, it’s foreigners who love our liberty and low yielding bonds…(based on TIC reports) and are supporting the DOLLAR.
Global “foreign” holdings of US Treasury….Fed holdings……total outstanding public debt
Dec ’00 – ………….$1 T ……………….$200B*…………………………..$3.3 T
Dec ’07 – …………$2.35 T ……………..$400B*…………………………$5.1 T
Oct ’13 – …………$5.65 T ……………..$2.3 T**…………………………$12 T
* mostly short end bills
** almost entirely long end bonds
Now look @ individual country increases, Jan ’07 to ’13???:
China $400 B —> $1.3 T (15% of GDP)
Japan $600 B —> $1.2 T (18% of GDP)
UK $100 B —> $158 B (5% of GDP)
Brazil $54 B —> $246 B (10% of GDP)
Taiwan $38 B —> $185 B (40% of GDP)
Russia $9 B —> $150 B (5% of GDP)
Ireland $19 B —> $111 B (55% of GDP)
Belgium $13 B —> $180 B (40% of GDP)
“carribean banking centers” $68 B —> $291 B
“oil exporters” $112 B —> $237 B
Luxembourg $60 B —> $133 B (220% of GDP)
Norway $20 B —> $78 B (15% of GDP)
France $10 B —> $60 B
Singapore $30 B —> $86 B (35% of GDP)
Switzerland $34 B —> $174 B (35% of GDP)
India $15 B —> $60 B (3% of GDP)
Thailand $16 B —> $45 B
Canada $28 B —> $58 B
Minor movers…???
Germany $50 B —> $60 B (2% of GDP)
Italy $14 B —> $29 B (1% of GDP)
Netherlands $15 B —> $30 B
Turkey $25 B —> $50 B
None appear to be leaving the treasury table…not sure if they are given money via swaps or promised “something” (gold???) to keep buying or if they are simply so weak they’ll do anything to prop up the system. But nothing data wise sez this is bout to come unhinged.
Point is all these nations and many more are actively supporting the dollar system (regardless their yapping) and seems in all their interest to maintain dollar and help keep a lid on rates, lid on PM’s, lid on commodities, and print ad nauseum. Not surprising gold is going nowhere when every country has it in their best interest to smack it down.
Probably also notable that the PIIGS have been so busy running their own LTRO that they are full to the gills of their own nations debt and do not appear on the list (except the curious exception of Ireland??? wonder where they got all those $’s while also going through their own bailouts???)…
BTW – trend of Foreigner ownership of Treasury debt since ’08…
Jan ’08 $2.4 T
’09 $3 T
’10 $3.7 T
’11 $4.4 T
’12 $5.1 T
’13 $5.6 T
Oct ’13 $5.65 T
seems main reason for slowdown in ’13 was debt ceiling freeze (only issued $650 B in ’13) while QE was buying up $540 B…but since debt ceiling raised, Treasury has issued over $600 B since Oct 17 to catch up. Don’t really see any trend changes or anybody selling off.
here’s the source data…
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfhhis01.txt
Then again, I freely admit the Treasury TIC data could be completely fraudulent as all the Treasury’s are held in US financial institutions and “assigned” to the foreign entities – could be they are bought via the Fed or ESF or straight up digital counterfeiting / accounting fraud. I have heard of one or two other .gov reports not exactly adding up…would make as much sense as “foreigners” buying all this ridiculous paper.
PART 2 -
this data is freely available and very much contradicts many peoples paradigms that the Fed is buying everything….or that China is dumping everything paradigm. Now, what to make of the data is very interesting debate but I just wanted folks to at least start w/ the same data and focus the discussion on what is vs. what isn’t happening.
The Fed’s balance sheet is definitely going straight up (particularly when considering of the Fed’s $400 B in holdings in ’08 were primarily short duration Bills vs. now holding almost entirely long duration Bonds; ie, Fed could have wound down the majority of it’s positions in ’08 w/in 6 months or a year by simply not rolling them…now, the Fed likely has an average maturity of 7 to 10 years and in such quantity that they will never be able to roll-off Fed’s books…will be forced to roll these $2+ T and still growing in treasuries forever).
Now, I’m not sure I’d agree the data shows confidence in the dollar…I might suggest the opposite. The Fed and Foreigners buying massive quantities of Treasuries while domestically there has been no relative increase in Treasury holdings since ’00 (total held notes/bonds domestically has been $2.5 T +/- 250 B since ’00)…this is a flashing red light on the dashboard for me. Particularly as the Fed now states it will taper it’s purchases which would effectively leave the $5.65 T in foreign holdings subject to rising yields and falling prices…or otherwise a scenario where they would take significant losses (likewise the Fed on it’s MBS portion). Most folks would begin liquidating positions when clear losses are inevitable but through Oct ’13, Foreigners have done no such thing!?!
So, either the Fed is going to allow and enable rates to break the 34 yr trend of decreasing rates (the same 34 yr period in which the greatest debt load in history was built…under the guise that ever greater debt will always be serviced by ever lower interest rates upon ever higher debt) and simultaneously chase out foreigners from the bond market…and leave the only source of Treasury buyers from domestic sources who will be forced to sell the majority of their risk assets (Dow 1,000?) to buy up all the rapidly rising yields on Treasury debt…or Fed is running a very large head fake before a much larger QE…and “foreign” holders somehow know this!?!
Only two options I see to attract domestic sources of cash to buy the $2 T necessary in ’14 if Fed doesn’t would be…($1 T in new issuance…Treasury has already issued over $600 B since Oct 15 budget yr start paying back all the internally “borrowed” cash from last years debt ceiling freeze + sequester rollbacks) + at least $1 T in foreigner sell / roll off assuming falling bond prices…)
1- rates rise significantly to make Treasury’s more attractive than high performing risk assets…and in so doing crash the interest rate sensitive economy…
or
2- stock market and economy crash 1st making very low yields relatively far more attractive than everything else.
Somehow I don’t see either of those scenarios in the Fed’s planning?
Seems given these above seemingly silly scenarios, given record fractionalization of PM’s, given metals driven to selling at a discount to their cost of production…that this 2014 timeframe is the turning point, the pendulum swing point and the pendulum may swing quite unevenly the opposite direction shortly w/ an even larger QE or some game changing event in the currency market?!? Hard to see a scenario where currency’s aren’t reset against PM’s to re-plumb a system backed up on far too much toxic shit…
What are the foreigners buying, long or short? Are these foreign central banks independent of the Fed? Maybe for China.
Lots of currency swaps etc. so who knows where all that liquidity ultimately ends up.
Scary numbers, tick tock indeed.
All the Fed's purchasing is very focused on 7yr through 30yr bonds...Fed's $540 billion in Treasury purchases was greater than long bond's issued in '13...coupled w/ the 70% cap on Fed ownership of each issuance (CUSIP) means they are buying significant rollover as well as new...
Short answer, foreigners can buy 30% of new issuance long bonds Fed doesn't plus a lot of shorter duration notes...they have relatively little in short duration Bills.
The bottom line will be the treasury and American people having to pay the Fed big time should those bonds mature, in addition, buyers for around two trillion of American debt, must come to the table in 2014. If this shell game becomes one between the The Fed and Treasury alone, it game over. Yeah, better let the likes of Bill Gross handle this.
What I've gone a long way to show is why the Fed can never slow or stop QE...the Fed has created massive Treasury supply for which there will never be organic demand absent a mega departure from risk into bond "safety"...
Hard to believe people (everybody) don't understand the Fed now *must* print forever moar...no debate, no QE tapers or QE wind downs...no exit from hyper-monetization. End. Stop. Period.
Gold, silver, commodity prices falling in this situation are ludicrous...as ludicrous as if I told you there would be fewer and fewer dollars chasing ever growing # of assets and this would cause the price to rise...we have an inverse where ever more infinite dollars are chasing fixed and growing scarcer resources causing the price to...fall.
That this would be accepted and peddled by economists, professors, etc. to the people show it's clearly time for me to check into the Loony bin. How deep into the propaganda state are we to observe something and accept it is exactly the opposite as our observation.
I have said this many, many, times. So long as the supply lines hold, nothing changes. When the heating oil, the bread, the milk or medicine can no longer be delivered, then and only then will eCONomics recouple with reality.
Same as it ever was...
The FED, besides the central bank of Japan, is the most willing to put their citizens into debt slavery.
And since we have a much bigger military and MIC - U.S. Treasuries are the drinks of choice at the speakeasy of the biggest Capo on the block.
and the band kept playing right up to the very end of the Titanic. your point is well taken and i agree that all CBs have a vested interest in maintaining the status quo for as long as possible. as long as everyone is printing, no one is printing in their eyes. but slipping beneath waves we are.
Meanwhile Diamond Foods and Alcoa wrist-slapped with monetary fines INSTEAD OF JAIL TIME for accounting fraud and bribery.
Neither Obama nor Holder ever met a rich white man they didn't love, who wanted to contribute to their secret offshore reitrement fund. Fraud and Bridery, Meh. The new normal.
ZB, the thirty year futures contract, didn't make it back up to where I shorted it; but it was an impressive spike. I'll let you know if I get stopped out. Be interesting to see if there's any follow on, or it was just a one day event.
Is your feed showing a 5 tick gap down from 129.05 to 129 at 10:15 this morning? That is rare for zb without an impetus at that time (at least not one publicized). That gap got filled post auction and is now struggling to hold as support. It is interesting. ...Lumber likes lower rates and appears to be closing limit up and well bid.
10yr @ 2.98 right now. How long can Larry Yellen keep it at bay before she loses control and it shoots up to 3.5% and beyond?
Tick-Tock, bitch...tick-tock...