4-Week Bills Price At Highest Bid To Cover Since 2011; Continue Trading Negative In Secondary Market

Tyler Durden's picture

That 4 Week Bill auctions continue to price at 0.000% (today for the third consecutive week) is no longer news: the Fed has made it abundantly clear that the moneyness of "high quality collateral" maturing soon and not so soon is sacrosanct, and will only fail if the Fed's credibility goes. However, what is news is the sudden demand for 1 month paper. Recall what happened a week ago during the last such Bill auction: "the Bid to Cover in today's auction just soared to 6.36x, higher than last week's 5.66x, and the highest since December of 2011, when the scramble into short-term paper was a function of year end window dressing (made since unnecessary courtesy of the Fed's Reverse Repo facility).  So while algos are levitating stocks higher based on simple carry currency/VIX correlations, why the sudden real money scramble for the safety of near-term paper?"

Today, the ante was just upped once more, as the Bid to Cover rose yet again, from 6.4x to 6.6x. Logically, this print is now the latest and greatest highest Bid to Cover since December 2011, and the question remains: why the scramble for safety?

Explanations range from smaller total auction, to lack of confidence in the stock market which has suddenly lost its impetus to go diagonally higher, to the anticipation of the first FRN issuance on January 29, to substantial Bill paydowns due to the debt limit. It gets better when one looks at the secondary market and sees the negative yields these, and other comparably maturing bills are trading at.

Whatever the reason, curious kinks along the curve are once again developing, especially when one considers the beating the 5Y has experienced in recent days (PIMCO concerns), and the rapid move in the 5s30s as shown below by @not_jim_cramer.

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frankTHE COIN's picture

The Air Raid Siren can be wrong 99 times. If its right Once and as a Company you are caught out there...

viahj's picture

"the question remains: why the scramble for safety?"

wait for it, it's coming.  it's being telegraphed to all that are listening.  the equity support will be withdrawn.

NotApplicable's picture

"Take my money, please!" -- Penny Oldman

eclectic syncretist's picture

Why the scramble for safety?  Because the Fed is in tightening mode and about to crash equity markets, which are being further hampered by horrible company earnings results (even after fraudulent accounting) and abysmal downgraded outlooks for 2014. Equities are clearly in distribution mode.

One has to wonder however, how much longer can pension funds and other bond-based interest-dependent retirement accounts stay above water in this ZIRP environment?  One might argue that the Fed would prefer to see bonds sell off slowly over the next year or so as to prevent the numerous impending bankrupties leading to retirement losses.  They'll probably screw it all up anyway, and the ultimate safety will likely end up being gold, but the funds will slosh around quite a bit before they figure it all out.

monkeyshine's picture

Maybe they want the baby boomers to be dependent on their SS checks.

kaiserhoff's picture


All of this manipulation and abuse of the markets tends to obscure the fact that the Fed really doesn't have a clue, and may well get the opposite of what they want.

andrewp111's picture

Did you consider that the scramble for safety has nothing to do with the US? Methinks there is trouble brewing in red China.

seek's picture

Yep. We've seen it with gold, we're seeing it in bills. Someone knows something, and that knowledge is spreading.

ArkansasAngie's picture

A "recession" this way cometh.


Winston Churchill's picture

Getting pretty crowded around the exit doors.

Unfortunately someone chained them shut on the outside.

kaiserhoff's picture

Stop loss orders are fine...,

  unless Crazy Coyote looks down.

Winston Churchill's picture

Just how pray , will you get your fiat out of the bank ?

Lewshine's picture

Nothing ben can't fix with a click of the mouse.

kaiserhoff's picture

Ben's clicked out.

It's all up to that old Yellen Dawg.  Gawdhelpus.

Yardfarmer's picture

please educate:

Last week we were the first to raise the very real and imminent threat of a default for a Chinese wealth management product (WMP) default - specifically China Credit Trust's Credit Equals Gold #1 (CEQ1) - and its potential contagion concerns. It seems BofAML is now beginning to get concerned, noting that over 60% of market participants expects repo rates to rise if a trust product defaults and based on the analysis below, they thinkthere is a high probability for CEQ1 to default on 31 January,


Spungo's picture

I posted this before but I'll post it again. People generally look for an inverted yield curve to form before the stock market crashes, but the logic of buying long term bonds only makes sense if interest rates are expected to drop after the crash. We're already at the lowest possible interest rates, so it's hard for an inverted yield curve to form. People bracing for a crash would rush into short term treasuries if they expect interest rates to rise.

ArkansasAngie's picture

The 10 and 30 years can come back down quite a bit.  Enough to make you lose your shirt ... and pants ... and shoes ...  

wisehiney's picture

If people become frightened enough, they will pay for negative yields, just like these tbills.

Flight to "quality" they call it.

Boston's picture

but the logic of buying long term bonds only makes sense if interest rates are expected to drop after the crash. We're already at the lowest possible interest rates


30y treasury yielded ~2.5% in 2012 vs. 3.75% today. 10y treasury yielded 1.4% in 2012 vs. 2.85% today. 5y treasury yielded under 0.6% in 2012 vs. 1.7% today.

SheepDog-One's picture

Overnite bank window robber rate is the only rate that matters today, and that's 0%.

SheepDog-One's picture

What could possibly go wrong now that weve got KrugBerElllin? We give TBTF 0% free money, you keep buying from us NOW!!

BadDog's picture

I believe this is what they commonly call "kettling".

Boxed Merlot's picture

So would you consider ZH and this comment thread "Sukeying"?

madbraz's picture

I would add that the NY Fed reverse repo of $93 billion today and over $80 billion yesterday has to do with it. Too muvh leverage in the tri party repo markets - it doesn't take much for someone to go under or for MMF to break the buck.

I suspect the Fed is in that market to keep cracks from appearing. It has nothing to do with "an exercise in preparedness BS".

Gigantic collateral shortage, real collateral - not the garbage these players assume is collateral.

Winston Churchill's picture

Trying to follow your logic Mad.

Surely the reverse repos should have sucked liquidity out, so

how come the bid to cover went up on Bills ?

It should have gone down.

Something nasty is certainly brewing in the shadow banking system.

Whether its the flu ,or double pneumonia is the question.

kaiserhoff's picture


Most of us know squat about bonds, except that the size and leverage are dangerous as hell for all things paper.

Spungo's picture

"Really? 30y treasury yielded ~2.5% in 2012 vs. 3.75% today. 10y treasury yielded 1.4% in 2012 vs. 2.85% today. 5y treasury yielded under 0.6% in 2012 vs. 1.7% today."

That was before the fed lost control of the bond market. The fed hasn't done anything to change their policy, but teasury rates doubled since summer. There are a lot of reasons to expect bond yields to rise, mainly the question of quether or not the government can repay those loans. Greece's interest rate soared because people lost faith in their ability to repay loans.

What's ironic is that I think the low interest rates are what will cause interest rates to rise. Imagine you're old and you have a quarter million dollars in bonds. If the interest rate was 10%, you wouldn't need to sell any of your bonds. With really shitty interest rates, you need to sell some bonds if you want to go to Fiji. People selling bonds will make the rates rise, and it's completely out of the fed's control at this point.

wisehiney's picture

You are correct if you are saying that the fed does not control interest rates. If not for qe rates would be lower, as they soon will be.

Gentlemen, place your bets.

One And Only's picture

El Erian was working for the CIA?

WHAT...that was crazy to learn