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A Stumped Deutsche Bank Has 11 Reasons (Or "Excuses") Why Everyone Is Buying Treasurys
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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Speculating on the speculative positions of speculators doesn't bode well
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
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.
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???
Good summary Ham-Bone.
There is no market.
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%
More...
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
And you wonder what the real inflation rates are across all those countries? My guess is higher than any yield posted there.
Fantasyland indeed.
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???
http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=zTm
All about FLOW...a little pull back in flow gives us recession, without flow we have depression
volume x velocity =flow
I buy US treasuries for stability. I opened my MYRA account day one and have not looked back.
I buy PM for stability but the fuckers keep taking it down.
Just say "thank you" and be happy that you can afford to preserve your wealth, most cannot.
Happy? www.kingoftherepublic.com
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.
And DIRP DIRP DIRP to you sir!
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
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.
Indeed. "Full faith and credit."
Specifically, no more faith means no more credit motherfuckers...
If?
That comment on the MyRA is a blatant "tell."
*runs off to make popcorn*
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.
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.
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.
Expressed best by Billy Connolly!
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.
That's pretty much the business model they were hoping for.
Cattle drive to the slaughter house model.
Good luck with that.
The US dollar movement is a joke.
Time to take the US dollar to new lows.
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?
ori
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.
So why is everyone buying Spanish and Italian debt?
http://markets.ft.com/RESEARCH/markets/Government-Bond-Spreads
That's-a-pretty-tight...
Flight to 'safety' or banking on Draghi QE?
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.
"multi-decade Pavlovian response to much stronger than expected US data has been higher Treasury yields, which usually provides some USD lift."
GET THE FUCK OUT OF HERE WITH THAT BULLSHIT!
xii. Deep depression coming
"The deep depression will continue" - fixed.
do what smart money is doing, not what they are saying. they are selling stocks and buying bonds.
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.
Analyzing bullshit manipulated markets is futile. If Deutche employees want to analyze something that is based in reality, they should get another job.
Interesting that their first reason directly opposes the fundamental basis of ZH
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...
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.
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 ...
Blue Horseshoe loves Belgian debt.
Tapering my ass...
Everyone scurrying to position their assets for WW3.
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.
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!
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
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.
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.
I hear you. But any big spike in velocity it is game over (a rapid inflationary event), so I think we both agree it is madness and doomed to fail.
The FED is not omnipotent, even though it is clear they have conned many people into thinking so.
They gave it to their owners! EUROPE OWNS YOUR BANKING SYSTEM and fuck your government and/or its documents! You signed a pact with the devil and considering how broke dick your government was at the time U GOT A GOD DAMN GOOD DEAL! Yo! Piss boy
broke dick. good stuff.
We have Been living on borrowed time! We were required to pay 10 trillion into a debt workout fund by raising taxes? That is the second leg of the story. Any growth will go to our overlords and they will clip and wait knowing rates sit in stone.
We attacked Iraq to keepthe oil in the ground and the FED started QE to drain liquidity not add any? The Fed elimates volocity by doing QE! IT DRAINS THE CASH YOU PUT IN TO THE MONEY SUPPLY AND CAPTURES THE INTEREST POTENTIAL what you don't get is NOTHING IS ALLOWED TO CIRCULATE. QE is like the morning after pill is to pregnancy. It stops growth from forming?
Crowd should have known better!
I am too late to this party. It has scrolled.
The funny thing is, the federal government issues less debt this year - so even with the tapering going on, the FED is still eating up the same ratio (or a bigger ratio!) of every new issues, as it did until now. And it has accumulated so much of the longer-dated treasuries, that the 30-yr bond became like a scarce commodity. So that's why it seems now like if stock was more important than flow - but I am not sure. If we accept that US debt is too big to be ever paid back - so if we accept that government debt is a Ponzi scheme - then flow MUST be more important than the stock accumulated so far.
How about the fact that it's a highly leveraged collateral based system, and there is more demand for collateral? Which would you rather have Spanish ten year bonds at 3% or the reserve currency of the world's bonds at 2.6%? My guess is if there is a collateral call the latter will be in a higher demand.
Good point! Let us look out on the timeline? Say US growth picks up to a place when they are both 2.5% and then USA 3% and rest 2.5% wont it create a pull into US because of better safer deal? Which is the ace in the whole as soon as our rates pass the worlds rate not just dollars will come CRAWLING! Just like they never left? And you are messing with the forces of NATURE MR. BEILE
Please, the "europeans" are buying because they have been instructed to buy treasuries.
Remember the BAILOUTS? Go have a look at the list of institutions that received the most money from the Federal Reserve. It can be found on page 131 of the GAO Audit. Notice how many banks in the E.Z. got money. Including Belgium...
LawsofPhysics, If you have such a degree, you might appreciate a piece of math.
If you take the equation I=PRt twice, equations 1 and 2, substitute Debt for P, set t=t and solve for R2, you get:
R2 = (I2 / I1) * (D1 / D2) * R1
Rates fall as Debt rises and as Interest Payments fall.
This equation is clearly not true in most environments, but it may be true in the current policy constrained, high debt environment that exists today.
DT
And what part of "all" paper goes to fucking zero don't you understand? If your "math" is correct, then the underlying purchasing power of the paper will be destroyed exponentially faster. You really think commodity providers will keep producing and delivering if the fucking paper they get in return doesn't even begin to cover the input costs?
Good luck with that.
You are right, in time paper will fail, but it is not yet that time.
For generations, gold was store of value and was desirable in bad times and bank notes were desirable in good times. With the demise of the gold standard, T Bonds became store of value and would rise in bad times as stocks fell. The US will likely be the last government to fail and at that point we can expect gold to reclaim its position as ultimate store of value. The world must be filled with fear and distrust for this to happen.
My equation, questions and comments are about the intermediate term. What is happening now. I had the question and wrote the equation over a year ago and I still find it somewhat unbelievable, but today I see bond prices moving contrary to popular theory and with this theory.
The question is "What is real today and how do we make money?"
Read "the Disappearance of Money" and get a feel for time and the quantities of money that must be printed for a population to loose trust.
DT
This is what happens when one of Pavlov's female dogs meets one of Schroedingers' male dogs -- you get half-dead Zombie puppies doing the same thing over and over again...
Brilliant
Fuck off Deutschebags you bunch of crooks!
More Anchor store front space available....
Office Depot to close 400 US stores, posts loss
The recovery is strong....
DB says it's stock, not flow, as their most likely reason....okay i am done pointing this out...
LMAO. Are the same doodleheads that were so loud exclaiming that long rates just HAD to go to 3.5% (10yr) back in December now just beginning see how wrong they were?
They still don't know why rates are falling and it won't be time to sell until they do.
Yields are heading to 3.5% because of the booming back half of the year economic growth. also yields are going negative because their is no growth. as long as you understand that it's real easy to make money.
The true and the false are irreconcilable; one is and the other is not.
FOFOF; Forget Opinions, Focus On Fact = understanding.
You finally scared everybody out of the bond market with epic fear meme repeated daily even x-mas for 5 full years? Even after the 30 year broke and yields started collapsing the meme of higher rates doubled down with bond porn twice a day! However last Friday was the kicker 288k and THIRTY YEAR YIELD COLLAPSED? Admit it trading bonds is tough as hell! Watch what happens when just a suggestion of higher rates hands everyone their heads again and again. What would it take for USA to reach a 15% discount rates of the early 80s Another baby boom? NO DEMAND FOR ANYTHING OTHER THAN FINANCIAL ASSETS?
Am I going to feel morally obligated to pay off that US debt when the system collapses?
Hell no.
They can collect from those that worked for the Federal Government, who did what they wanted, despite the wishes of the majority.
And then: 11 Reasons For Downgrading Deutsche
Deutsche Bank Ratings Under Review at Moody’s on Profit
http://www.bloomberg.com/news/print/2014-05-06/deutsche-bank-ratings-und...
You have got to get your head around the idea that the Fed is not printing its capturing! It is taking mortgages income and anything that in future has potential of being money right out the system and giving it 90% to the treasury to issue debt thus TAKING THE SHIT OUT and putting future guidance in its place? We are all the worlds hamsters and are all named Tom.
Lets say that once the titanic realized that it hit something (wall of ice) the capitian desired to reverse engines and crawl backwards from middle of the atlantic back to port. His reasoning was the water would not flood in going backwards and he new his way back home? -73 man sailed out upon an open sea- ride captain ride-
Now you should all stop and get down on your knees and give a little prayer of thanks to the so called bond vigilanties and their crystal ball(s)xx
I know this pattern, have seen it before, maybe cyclically: just when you conclude the US economy is totally hosed, the rest of the world gets even more hosed, and the US economy is saved once again in spite of itself.
Can this really be a cyclical pattern, about every ten years?
Big Banks a Bunch of Organized Criminal Conspiracies http://www.alternet.org/corporate-accountability-and-workplace/are-big-banks-bunch-organized-criminal-conspiracies
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.
hahahahahhahahahahhahahahahah
Isn't this the Bank that vacuumed up all the mortgage backed securities?
Anyone bullish on the economy who drank too much Recovery Koolaid can form fit the data to their bias all they want, but they always seem to leave out the structural loss of manufacturing jobs due to globalization. The US went into a depression in 2008, and you can make the case that it started in 2001, but the symptoms of that depression have been masked by insane deficit spending and Fed bubble blowing, both of which have limits. It's not even like we're going back into a recession; we're headed for the greatest depression in world history. And it's not going to be satisfying at all that the Austrians were right all along. The Fed are fools. The politicians are fools. The Keynsians are fools. And they are ruining the world. Now that they've screwed over the next generation by borrowing trillions from them to get reelected by promising MORE EVERYTHING, which is a flash in the pan that fixed nothing, why not screw over the generation after that by inventing a 50-year bond. And then when you're done with them, let's keep it rollin' with a 100-year bond. Fuck the whole future! Unborn suckers. Enslave em' all.
Here's a proposal for you. How about all the nations of the world get together and decide that men have had their chance, and from now on we're gonna give women a shot at running the joint? Men are driven by sex, money, glory, and we love to blow shit up. I'm thinking women can do better. Until, that is, the ES is pushing into the 1600s and Yellen reverses tapering and proves there are larger forces at work that supercede the individuals in power.
Here's another proposal. From now on, if you seek a job in power, you are banned from power. Instead, we have an 11 person committee and their whole job is to seek people in everyday life who have the characteristics to represent the people and make good leaders. They can choose to accept the calling, or not. Then the people vote. No more politicians by desire. You suck. You're out. I keep waiting for us to reach Peak Crazy. But the world gets crazier every year. It's the only inifinite resource we have.