A Stumped Deutsche Bank Has 11 Reasons (Or "Excuses") Why Everyone Is Buying Treasurys

Tyler Durden's picture

Many are perplexed by the 'strength' in Treasuries as yields collapse despite a headline payroll print propagandized (choosing to be non-believers in the bond-market's all-knowing eye). As Deutsche Bank notes, for well established reasons, a multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift. Last Friday, this plainly did not work, which proved extremely costly for many in the trading community. At a minimum Pavlov’s dog choked, but is Pavlov’s dog dead? The short answer is no, but Pavlov’s dog may have taken off the summer.


As Deutsche Bank reports,

One explanation for the surprising bond and FX response to the NFP data has been to fit the data to the market price action. This will prove wrong. The April employment was genuinely strong. The last 3 months payroll changes are all above 200K and consistent with some growth acceleration beyond weather distortions. Even the most disputable aspect of the report, the decline in the unemployment rate was achieved with a decline in participation rate, but only back to December levels. US data did not support any ‘capitulation’ from the strong US growth story.

The bad news is that it obviously did not stop a capitulation of many short Treasury and short USD trades. Which raises a couple of critical questions – how can we reconcile the price action with strong US data, and what message is the price action conveying?

Treasury resilience – 11 reasons, or 11 excuses?

A starting point is to recognize that US Treasury resilience remains central to much of what is happening to markets and currencies this year. Without flow of funds data - Q1 data is due on June 5th - we do not have a complete picture, but here are 11 explanations for Treasury solidity:

(i) The Fed was right - the 'stock' effect is more important than the ‘flow’ effect, and the Fed’s large bond holdings, particularly at the back-end, will suppress yields far into the future;

(ii) The ‘flow’ is also bullish, given the scale of Fed QE relative to the shrinking deficit/issuance; and relative to the buying from other players including:

(iii) Central bank purchases of Treasuries;


(iv) Pension funds that are underweight duration and overweight risky assets after last year’s equity gains;


(v) Fed H.8 data shows Commercial banks are buying securities again, seeking yield/carry.

(vi) Against the above, there are very large net short leveraged positions – record CFTC Eurodollar shorts and very large 10yr equivalents;

(vii) Inflation data remains soft. Last week’s soft average hourly earnings and ECI data was notably benign.

(viii)The China/ BRIC/EMG impetus for global growth is still on the wane.

(ix) The Ukraine. The impact here may be subtle, at a minimum making Treasury shorts cautious.

(x) Equities reduced traction, has encouraged a global search for yield while lower vol has encouraged a shift toward carry.

(xi) Ongoing speculation of a lower terminal funds rate, including all the ‘secular stagnation’ talk.


Deutsche concludes, for some currency pairs like USD/JPY, a simple back-up in US bond yields should be a sufficient condition to see the currency follow suit. In contrast, for the USD/EM trade it is likely that something bigger is needed whereby yields break new ground either at the short or long-end to reinvigorate the short EM trade.

What remains clear is that the foundations of the strong USD story built on stronger growth and lagged inflation acceleration still stand, but that every part of this adjustment, including higher front-end yields, long-end yields higher, and curve flattening will be drawn-out, by the slow Fed tapering.

Greatest confidence remains in a view that the front-end is overly dovish by any metric, including the FOMC’s own forecast, and that this will be self evident by the end of Q3 at the latest. Pavlov’s dog choked. Pavlov’s dog is not dead, but may have taken off the summer.

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gdiamond22's picture

Speculating on the speculative positions of speculators doesn't bode well

CPL's picture

Here take this IOU and I'll give you a credit note then underwrite it with a wild guess.  Make sure someone markets it as a bond swap.  When a sucker, I mean client, comes in with real assets give them a recipt of the transaction and take their stuff.


//In a nutshell

Pinto Currency's picture

What a crock.

When you've got c.b.'s with swap lines able to enter the market (think Belgium holding $400 billion of Treasuries) and QE at play, there is no market.

Beutsche is stumped because their bullshit won't stick.

Ham-bone's picture

US Treasury ran a $250 B deficit Jan 1-Mar 31 ($700B since Oct 1 but $300 B of that was simply accounting for money spent during the previous fiscal yrs. debt ceiling farce and added to the books afterward), running a $100 B surplus since Apr 1 (aside...thus the shocking sink into a new recession...who coulda guessed???).....net net, "only" $400 B in new Treasury debt since October 1...and likely 80% in notes/bonds...or $320 B in new Note/bond

Fed buying $35 B, then $30 B, now as of May $25 B/mo. 

Public Note / Bond market is $10 T

Fed already owns $2.5 T in Note/bonds...they aren't selling and continue rolling

"foreigners" own $5 T in Note/bonds...they aren't selling and so far continue rolling

This means all Domestic holders of Treasury Note/Bond debt (ex-Fed) hold roughly $2.5 T...they have not been buying and have not been rolling over their Notes/Bonds yielding next to nothing.  About 1/5 comes due for rollover every year (or $500 B)

So, put it together, negative new issuance, Fed buying less but their buying has more impact since there is no new issuance. they are primarily buying the rollover stock previously held by domestics (states, pensions, insurers, etc.) ..rates go down.  What am I missing???

Pinto Currency's picture


Good summary Ham-Bone. 

There is no market.

Ham-bone's picture

And just for fun...here are all the record low yields worldwide while equities at cycle or all time highs worldwide...

10yr debt below 1%

Japan 0.61%

Switzerland 0.84%

10yr debt below 2%

Sweden, Netherlands, France, Germany, Austria, Belgium, Denmark, Finland,

10yr debt below 3%

Ireland, Spain, UK, Canada, US, Italy (congrats to Italy for breaking the 3% barrier today to join it's other "PIIGS" mates, soon to yield on par w/ US)

10yr debt below 4%

Australia 3.86%,  Portugal 3.81%


New Zealand 4.38%, Greece 6%

Now no one buys these things with real "money"...just free digits passed around...something called monetization.

Nothing is real....fantasyland...all given made up names (LTRO, QE, 3 Arrows) that simply mean centralized bond pricing

Bay of Pigs's picture

And you wonder what the real inflation rates are across all those countries? My guess is higher than any yield posted there.

Fantasyland indeed.

Ham-bone's picture

a quick looksee @ this chart tells you absent ever growing deficits, there is no "growth"...but the growth is so tepid it can't come close to keepng up with the debt created...Rubicon is crossed and now what???  Historically, the answer is false flags and war...rhyming w/ history???


 All about FLOW...a little pull back in flow gives us recession, without flow we have depression

mt paul's picture

volume x velocity =flow

Zirpedge's picture

I buy US treasuries for stability. I opened my MYRA account day one and have not looked back.

The Abstraction of Justice's picture

I buy PM for stability but the fuckers keep taking it down.

LawsofPhysics's picture

Just say "thank you" and be happy that you can afford to preserve your wealth, most cannot.

Zirpedge's picture

Who are "The Fuckers"? Why do you folks feel the need to spite yourselves all the time? The simple answers are often the correct answers. Gold is a barbarous relic. It is not suitable for individuals to trade efficiently nor is it easy to transport or defend. No thanks, I'll keep my money in the bank where it's backed by the FDIC and ATM's are plentiful wherever I travel.  

BrocilyBeef's picture

And DIRP DIRP DIRP to you sir!

LawsofPhysics's picture

FDIC insured?  LMFAO.  Yeah, Bank of America has trillions of CDS "bets" that are "FDIC insured" too.

I suggest you google "Cypress" and "bail-in" to see how safe those "FDIC-insured" accounts will be.

If this is sarcasm, nice work

Rock Sniffer's picture

FDIC is just the same as the UK's FSCS.  Neither of them are what they claim to be.

Those deposits are just electronic entries on the liability side of the bank's balance sheets.

Asset values drop, capital blown away - bank insolvent.

Insured?  Nope - just haircut the liabilities until the sheet balances.  Insolvency gone.

If everyone's (if they've got any sense) under the FDIC/FSCS limit, then who gets haircut?

If it comes to that, then those ATMs won't be working.  You won't be told it's going to happen, either.

Edited to add:  that "money" in the bank; it's just someone else's debt.

It's a debt-based money ponzi.  Welcome to the real world.

LawsofPhysics's picture

Indeed.  "Full faith and credit."

Specifically, no more faith means no more credit motherfuckers...

NotApplicable's picture


That comment on the MyRA is a blatant "tell."

*runs off to make popcorn*

Zirpedge's picture

I forgot that this website is fostering a monolithic group of malcontents. Any attempt to inject a rational POV is to be considered sarcasm and dismissed with down votes =(.  

The US dollar and treasuries are backed by the full faith and credit of the US government. If a false consensus is presented in online forums that there is no longer any faith in the USA should I get scared and buy out the display case of PM from my local pawn broker? No thanks, I'll stick to my MyRA and my love for the good ol USofA.

You guys can internet commando yourselves into a frenzy over what group is secretly conspiring to hurt you. PS if you think the NSA is recording eveything you say online, maybe you should be more upbeat and positive and fly under their radar. Just sayin.

PPS Sorry so many of you have hurt emotions over my MyRA recommendation. Sensitive gold bugs these days.

Bemused Observer's picture

That 'full faith and credit' thing is all well and good if we are talking about patriotism. But when it comes to finance, you have to remember that most of the world thinks in 'dollars and sense' so to speak. Those folks HAVE no sense of patriotism, they expect to be paid back, on time, and get the promised results.

While YOUR full faith and credit might have a little leeway, (due to your patriotism) the folks we have to deal with have no such illusions. And because of that, it's a lot easier to shake that confidence. So, if we are doing something stupid financially in our own short-term interests, YOU may go out and go buy a MYRA and feel good about it. But someone over in say, China, is just going to go "WTF?" and decide to sell off what they have, and if enough folks do that, you take a hit, regardless of how good you felt about buying the thing.

James_Cole's picture

I'm guessing you're not serious, but yeah buy UST!!! 

Gold has performed fine as long as you're not a buy at any price and hold till the apoloclypse-r. 

Some people on here are so clouded by their emotions (intense misplaced anger) there's very little room for rational thought. 

Zirpedge's picture

We can't risk letting such a vital institution fail. My good man, if our banking institutions became insolvent, we would have anarchy in the streets and all out civil war. Now why would you want that? This forum reeks of sedition. I support the policies of "whatever it takes" to maintain our financial institutions and national strength and security.

Mercury's picture

That's pretty much the business model they were hoping for.

CPL's picture

Cattle drive to the slaughter house model.

CPL's picture

Good luck with that.

yogibear's picture

The US dollar movement is a joke.

Time to take the US dollar to new lows.

Oh regional Indian's picture

Under a truly fascist regime, corporate debt, which is Notional, becomes National.

That is IT. see?

Notional to National in one fell swoop.

Clearly corporate paper must be drawing less and less "interest", thus this.

Hey DB, want my services in figuring out these stumpers?


LawsofPhysics's picture

Correct, Remember the list of institutions that received the most money from the Federal Reserve? This can be found on page 131 of the GAO Audit.


Tit for Tat among the world's fascist/kleptocrats.

Mercury's picture

So why is everyone buying Spanish and Italian debt?





Skin666's picture

Flight to 'safety' or banking on Draghi QE?

Rock Sniffer's picture

My guess for the last few weeks is expectation of Draghi QE.

Or maybe not; all he does is talk.  Whatever he says, Europe is NOT fixed.

Kaiser Sousa's picture

"multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift."


praps's picture

xii.   Deep depression coming

LawsofPhysics's picture

"The deep depression will continue" - fixed.

101 years and counting's picture

do what smart money is doing, not what they are saying. they are selling stocks and buying bonds.

Stoploss's picture

Pension funds rolling out of stawks and into bonds..




It may be for a little longer than just the summer.. Since it takes them about ten years to make a decision, let alone, act on it.

i_call_you_my_base's picture

Analyzing bullshit manipulated markets is futile. If Deutche employees want to analyze something that is based in reality, they should get another job.

fonzannoon's picture

Interesting that their first reason directly opposes the fundamental basis of ZH

compound interest's picture

Exactly the same thought came to my mind, too. However, even the FED admitted that flow was more important than stock - that's why they started the "unlimited", flow-based QE3...

fonzannoon's picture

it does not seem unlimited anymore. maybe that was the last push to get them to own enough stock and now they have control. 

We question everyone on here all day long. I don't understand why it's so wrong to question zh itself. I'm not guarantiing Tyler is wrong. 

beegle's picture

what about creating a conflict somewhere in eastern europe , so the sheeple make up for the slack after tapering .... that sure buys some time , doesnt it ? we are going to have so many nobel price winners these year , the sweds are going to have to ask for their gold back as well ...

Bay of Pigs's picture

Blue Horseshoe loves Belgian debt.

Tapering my ass...

SheepDog-One's picture

Everyone scurrying to position their assets for WW3.

fonzannoon's picture

BOP the reason they seem to be able to taper is because as DB points out in their very first reason, it's stock that matters and not flow. so until ZH can show where stealth QE is being done. it is becoming clearer that ZH may have this wrong. It's no big dea, it's just the fundamental argument ZH has built itself on, that's all.however if markets start imploding and CB's have to react by coming back in, then that is a different story. I guess we will see soon enough. and by soon enough i mean probably way after i'm dead.

elwind45's picture

The fundamental arguement is THE FEDERAL RESERVE is broke and its a fucking JOKE? Since '08 the FED has capture mortgages and ring fenced the TBTF by jacking up long rates to fed money to its systemwide balance sheet! Now its withdrawing support and trying to get out of QE? THEY ARE DRAINING LIQUIDITY and slowing their spend which means THIS IS NEAR THE TOP OF RATES!!! Everything produced legal and illegal goes across the FED BALANCE and the FED loans it to EUROPE? Work harder/smarter DUPES!

fonzannoon's picture

they are getting out because they (believe) that they have attained total control of the bond market. Because they own enough (stock). in fact they may own too much, and are crowding out other buyers

Bay of Pigs's picture

Remember the $700B that was really 16T in 2008/9? How can anyone prove what they do in secret fonz?

Do you actually believe they are tapering? Appearance? maybe. In reality? Hell no...they are trapped.

fonzannoon's picture

well i certainly can't prove it. I do think the (termporarily) decreasing deficits play into this. QE provided flow, and the fed was buying up those bonds. now they own enough of the long end to control it and prevent a mutiny. I think that is plausable. It makes sense on some levels. I think they are now trying to figure out how to spark velocity. otherwise we get big problems. Velocity is out of the feds hands now. it's up to fiscal policy, and that ain't happening.

don't be surprised if the end up letting some bonds mature and roll off the balance sheet soon trying to combat imploding yields.