This page has been archived and commenting is disabled.
Is This Why Bonds Are Rallying?
With stocks at record highs and priced for some nirvanic perfection of future growth reaching escape velocity at some point soon, the question of why bonds keep rallying is vexing to the status quo minders who just can't fathom it. However, as Bloomberg notes, the world’s most actively traded short-term interest-rate futures are signaling the path higher for the Federal Reserve’s benchmark rate won’t be that high.
"When the Fed begins lifting rates is almost not an issue any more,” Stan Jonas, former managing partner of Axiom Management Partners in New York, "The real question is how fast does the Fed increase rates and where do they stop. The market now sees diminished macroeconomic expectations and expects the Fed to ending the upcoming tightening cycle at around 3 percent."
In other words, the bond market believes in the Japanization of America and another lost decade as the new normal low/no growth world slugs along with no escape velocity dreams anytime soon.
Or even more clearly - it's about more than this cycle... the Fed's taper will run its course, the Fed will tighten rates and the economy will slump rapidly meaning the Fed will ease once again (and by then QE will have lost all credibility as anything but an asset inflation machine and along with it - the Fed's credibility)... the tumble in forward rates indicates the markets growing belief that the future growthiness looks very different from the dream priced into stocks...
Source: Bloomberg
»
- 21863 reads
- Printer-friendly version
- Send to friend
- advertisements -
Or even more clearly - it's about more than this cycle... the Fed's taper will run its course, the Fed will tighten rates and the economy will slump rapidly meaning the Fed will ease once again (and by then QE will have lost all credibility as anything but an asset inflation machine and along with it - the Fed's credibility)... the tumble in forward rates indicates the markets growing belief that the future growthiness looks very different from the dream priced into stocks...
This is identical to when the Japanese raised short term rates with 0,5 % and had to admit that it killed the economy so returned back to the path of endless QE. USA = Japan.It's sharia law
Is this why Bonds are rallying? NO. It's because the Euro just dropped from 1.39 to 1.37 and Euro wealth is pouring into the US Treasuries.
You give them a lot of credit they don't deserve...I call bs
Big difference in Japan and US:
No savings from exporters or domestic workers to absorb US treasuries. US treasuries depends on willingness of foreign countries to accept them as form of payment. Japan did not depend on that at all up until now.
As for QE in Japan in actually terms it only started in 2013, because while QE existed it was very small in relation to the stock of debt.
raise rates, i fucking dare ya, Yellen!
Bernanke could do it in fifteen minutes, but I hear Yellen can do it in ten.
Reason rates are going down is because Treasury's are in extremely short supply...
Of the $10 T in Notes/Bonds (1yr up to 30yr), Fed / "foreigners" own $8 T. Neither of these sources are selling or will stop rolling over. Of the $5 T in intra-gov, it will be rolled over for infinity. The banks own almost the entire $2 T Bill market. This means there is hardly any float available.
In essence, of the $17.5 T Treasury debt, there is really only a $2 T note/bond market not in defacto-CB hands, and on net, no new issuance this qtr and little this year...and Fed still buying $25B/mo (Fed buying rollover from what little Domestic holders are left). That is it.
Make what you will of this but it's best just to consider all of the Fed/Foreign/intra-gov $13 T as "retired" and we'll be billed "eventually"...and if Treasury doesn't pick up the issuance, the squeeze may push us ever closer to Japan which is all the more reason the Fed has to stop QE before all yields sink to zero (that comes later).
There is merit in your perspective, Hamdood.
But this doesn't explain Spain and Italian yields, nor Japan's.
Odds are much better that horrendous growth means no demand for loans and you can't increase the price of things people do not want.
The PIIGS rate collapse is nicely explained by combo of LTRO (money for nearly free to buy higher yielding bonds) and the assurance that those bonds are riskless by Draghi (held w/out any reserves)...so Euro banks, Japanese, etc. piled in to buy Greek and Irish, Spanish, Italian, etc. debt to make nearly infinite spreads...riskless infinite spread.
Japan seems their institions are legally bound to buy Japan's debt and some sort of this for that carry bullshit.
But your point there is no growth is totally valid...and US home market where the most credit worthy buyers are paying full cash rather than taking advantage of historical low rates is great evidence this is all pear shaped.
you are both right.
Ya, I know.
I just thought it important that I have the chance to type "Hamdood".
Crash - I'll add it to the list (along with Ham-solo, Ham-salad, and Ham-idiot) :)
"Reason rates are going down is because Treasury's are in extremely short supply..."
Ham-bone say it with me. I will get us started.
It's stock, not flow.
a littlle louder now.
IT'S STOCK, NOT FLOW
A little louder now....
Fonz - but without the flow of new debt (coupled w/ higher taxes) the economy is slipping into recession...not some winter effect but simply absent the flow of helicopter money the economy is going backward.
so, it's a chicken and egg thing I think...not a this or that.
If we call deficits fiscal stimulus, and you reduce the deficit via sequester and millionaire tax increase (Jan last year), then that is de-stimulative.
There is a big G in the GDP equation and it's not getting bigger.
My point is simply that by owning as much of the stock as the fed does, they now have control of the bond market. Whatever, it seems to be an empty point.
The problem the fed is currently facing, as Doc points out below, is that no one believes them anymore with regard to rising rates. I mean how many years are we going to say growth is around the corner before no one believes it? So as someone said to me today "So at some point there is really nothing more cheap money can do absent of course growth in the economy."
So now it seems we all pile into bonds and go Japan. The fed will probably start doing whacky shit to try to nudge rates up.
yup - look at the RE market and investors are now 25%+ of the market...and all cash purchases for the 1st qtr were 43%...with rates @ next to nothing...and these aren't institutional buyers but primarily moneyed investors who left the bond market to get a yield...The Fed's low rates are completely backfiring from a money multiplier perspective. I think the Fed beilieved these folks would lever up and take on 10 houses rather than go all cash for 2 houses.
going back to what i had asked u a while back...many of the mlp's i own are green today, as are the telecoms and utes. I think that continues. But we keep going like this and high yield is going to blow sky high. I wonder how far off we are from that. it's gonna be funny to watch people explain these leveraged loans away when they are annihilated.
as the options to get a yield are dwindling, the squeeze in those with a yield and the risky chase could be really dramatic before the "eventual" pop...but everything will eventually pop, so being in one of the last pops is probably a good goal???
well right before the last pop i will go total contrarian and jump into FB
"and these aren't institutional buyers but primarily moneyed investors who left the bond market to get a
yield"
No way.
Your basic 75 year old bond investor did not
exit bonds to become a landlord. That's just
not credible.
No but your well off 40-60yr old did.
<-- ffr @ 3 percent
<-- nfw HAHAHAHAHAHAHAHAHAHA!!!
Bullfuckingshit! The fed is not going to raise rates and invert the curve again just to start the chaos all over. This is not that fucking hard to figure out people. It's a highly leverage collateral based system and entities are scrambling for collateral. If there was no desperate need for collateral there would be no need for the over night reverse repo which just happens to get it's greatest use at the end of any reporting period (hmmmm that's curios). Where do they get these people?
Just look at the fannie and freddie announcement yesterday shows you that rates are going to be kept low for a very long time..Brussles is going to be awash in bonds.....this administration thinks the housing market is the only economy we have....so they are going to try to save it...
The fed will raise rates just as belgium steps in to fund primary dealers. Fkn saw this comming a mile away
<-- BLOOMTURD, FULL OF CRAP AS USUAL
<-- ZIRP 4 EVAH BITCHEZ
<--------- all of the above
If you sign onto the concept that $102 oil is a big deal and is humongous friction on GDP, and consequently, yields, then this little news tidbit just posted on the primary oil blog is an earthquake:
http://bismarcktribune.com/bakken/north-dakota-oil-production-returns-to...
This is the Bakken and the problem with gas flaring at drill sites --
>>Helms said reining in natural gas flaring will be a priority for the department in the months ahead. As of June 1, a new policy requires all new drilling applications to include a gas capture plan.
and then the Quake:
The Industrial Commission is expected to consider in June whether production might have to be curtailed.
You bring the Bakken peak calendar forward, you destroy the abundance narrative -- to say nothing of GDP contribution from drilling.
It's almost like these weird economic issues we see poking out everywhere around the world are symptomatic of hard physical limits, not just poor economic and social engineering strategies.
Good thing they're not, and we can eventually elect the right kind of leaders, or have a revolution and finally get back to endless growth.
Gas prices up 27c here today. Kissing $4.00 a gallon.
Robust demand for MyRA's. I know I'm pluggin mine with everyhting I have left over from this Detroit fixer I invested in.
Who do they think they're fooling? They can't raise rates ever, they've locked us into ZIRP until the hoopdie flies into a million pieces.
Expectations got nuthin to do with it, except maybe Yellin's.
Did you know 15 minutes can save you 15%?
Everyone knows that, but did you know Central Bankers should not mess with an econonmy?
I unfriend you
8)
Another answer: This is just a widening of the trading range, driven by speculative buying and selling.
the Fed's taper will run its course, the Fed will tighten rates
Thanks for the good laugh!
In retrospect I shouldn't have sold em at 36 even last night but at the time I thought I was a freaking genius for waiting that long.....
Damn bonds taking me down again.
update, notice the date. got this on bberg today:
----- Original Message -----
From: JOSEPH LAVORGNA (DEUTSCHE BANK SECURI)
At: May 15 2014 13:10:32