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7Y Treasury Yield Drops Below 2%

Tyler Durden's picture




 

The plunge in yields continues and even unflappable stocks are starting to crack a little... 7Y Treasuriy yields just cracked below 2% for the first time since Nov 2013. What is perhaps most worrying for the exuberant equity market is the dramatic flattening in 2s30s today (2Y +2.5bps, 30Y -9bps on the week).  Wondering why bonds keep rallying... see below...

 

Yields are tumbling across the complex (except the short-end)

 

Leaving the 7Y back under 2%

 

With 2s30s at one year lows...

 

And this is why... Treasury shorts actually added into the rally of the last few weeks...

 

Charts: Bloomberg

 

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Wed, 05/28/2014 - 10:42 | 4801721 LawsofPhysics
LawsofPhysics's picture

Flight to "safety"...

 

Now about that counterparty risk...

Wed, 05/28/2014 - 10:48 | 4801751 0b1knob
0b1knob's picture

Something wicked this way comes...

Wed, 05/28/2014 - 10:53 | 4801774 NoDebt
NoDebt's picture

DOWN goes Frazier!!

Wed, 05/28/2014 - 10:56 | 4801801 fonzannoon
fonzannoon's picture

a buddy of mine saw on Bloomberg earlier that the fed is buying 91% of all issuance in 2014 as opposed to 63% in 2013. it's amazing yields are not lower.

Wed, 05/28/2014 - 11:40 | 4801973 maskone909
maskone909's picture

fonzy we are pretty much following japans lead from what i can see

 

everyone should see jim rickards interview on usawatchdog.  he describes what is going on in belgium and the mechanicsinvolved.

in summary, he believes the european central bank is indirectly printing euros by using treasuries to swap currency.  my guess is its for deutchebank.

http://usawatchdog.com/catastrophic-outcomes-may-come-faster-than-expect...

Wed, 05/28/2014 - 11:40 | 4802015 fonzannoon
fonzannoon's picture

This is going to be interesting. They will need about a 350k NFP report to fraud the 10yr back to 2.5% next week. We went from QE4eva to they can't get out of QE fast enough. 

Wed, 05/28/2014 - 11:54 | 4802068 walküre
walküre's picture

Fonz, how are they going to service debt and yields on debt when the amounts are getting larger and larger?

Rates can only go down further until some of the debt needs to get renegotiated or defaulted upon. Iceland is in the process of breaking down their debt and it will affect big banks everywhere (small fry but still).

There is alot of cash and cash equivalent parked. Whether in private or corporate hands, the amount of money that's looking for yields is phenomenal.

Nobody in their right mind puts their own money into the fairy tale equity markets. Maybe allocate some of it in dividend plays but that's not what has levitated markets upwards. ZH reported where the money to keep the illusion afloat is coming from.

Everyone with cash and cash equivalent paper is waiting for rates to go up and then make a move. Ain't gonna happen. The Fed and all other CBs are cornered. Same goes for the TBTF banks.

As soon as any quality grade paper offers better than 1% or 2% yields, the show is over. The rush into that paper would be crazy wild.

In the meantime, QE keeps priming the pumps and more worthless fiat sloshes around and gets horded by those with the privilege.

This is a completely new paradigm. Return to "normal" can only come if we experience major pains and losses first.

Wed, 05/28/2014 - 12:02 | 4802110 CrashisOptimistic
CrashisOptimistic's picture

"Normal" is $30 oil.

Expecting that?

Wed, 05/28/2014 - 12:38 | 4802239 smlbizman
smlbizman's picture

i dont think the fed has cut any qe......they are just hiding it thru belgium et.als....i would bet it has increased if anything...i could be wrong...

Wed, 05/28/2014 - 13:24 | 4802395 walküre
walküre's picture

Never again.

What's your take on interest rates then? Can they raise rates in this "new normal" with oil North of $100?

Wed, 05/28/2014 - 12:05 | 4802126 fonzannoon
fonzannoon's picture

i dunno man i believe there is a ton of money in equities right now. the 401k/IRA money is penned in and can only choose between pimco and fidelity. There is no other avenue for capital to flow to. people have rotated into cash for 5 years only to come back in. easier to just hold some telecoms and utilities and collect the div.

Wed, 05/28/2014 - 13:35 | 4802432 walküre
walküre's picture

I think it's been discussed here that the "Great Rotation" from bonds or cash into stocks is not happening. The cash is still cash and equities' volume is on vapor. There's no point to crash the markets now because there's nobody to take from.

Wed, 05/28/2014 - 13:55 | 4802492 SDShack
SDShack's picture

"There's no point to crash the markets now because there's nobody to take from."

Correct in the real world. But in the sociopath's world (and all TBTB are sociopaths) there is ALWAYS somebody to take from. Never underestimate the desire of a sociopath to win at all costs. They will sacrifice anyone and everyone for the smallest of gain. Strangers, neighbors, co-workers, friends, family, it doesn't matter. Hell, they will rob the dead.

Wed, 05/28/2014 - 13:21 | 4802382 shitco.in
shitco.in's picture

That "rush" that you talk about, it is going to be (is being engineered to be) into Bitcoin.  I think that's pretty clear by now.  

Wed, 05/28/2014 - 14:33 | 4802596 scraping_by
scraping_by's picture

"Return to "normal" can only come if we experience major pains and losses first."

Depends on who 'we' are. Nationalize the Fed, and 33 - 50% of the Treasury debt disappears. Congressweasels could do it in an afternoon.

Boon for the American taxpayer. For the bondplayers, not so much.

 

Wed, 05/28/2014 - 10:45 | 4801729 Kreditanstalt
Kreditanstalt's picture

Faith in the gun of government taxation?  Or faith in central printers?  'Cause it sure isn't "economic growth"...

Wed, 05/28/2014 - 10:46 | 4801737 LawsofPhysics
LawsofPhysics's picture

neither, just more frontrunning of the "taper"...

(hint; there is no fucking taper, show me the balance sheet motherfuckers.)

Wed, 05/28/2014 - 10:52 | 4801768 Spitzer
Spitzer's picture

With the buying in Belgium, there is actually more treasury buying. Not less.

With the gold market controlled, there is enough money for everything to go up. Pretty simple

Wed, 05/28/2014 - 11:09 | 4801887 LawsofPhysics
LawsofPhysics's picture

Correct.  The Fed is "the market" and they have plenty of "money" to do whatever they like to the "market".  No one else with deeper pockets is even playing anymore.

 

Wed, 05/28/2014 - 11:19 | 4801920 Spastica Rex
Spastica Rex's picture

The Fed is the CASINO.

Wed, 05/28/2014 - 14:11 | 4802537 negative rates
negative rates's picture

The Fed always wrong, and never by the book.

Wed, 05/28/2014 - 14:02 | 4802509 SDShack
SDShack's picture

Absolutely correct. Use the printing press to monetize the debt. Corner the bond market. ZIRP forever allows the cycle to continue. Wipe out the bond vigilantes to protect the scheme. Transform govt. debt into an all powerful, all controlling govt. security state so there is no threat to the NWO. Printing Press + Market Control + Govt. Control = Perpetual Ponzi. It's a bankers ultimate wet dream, and the world's nightmare.

Wed, 05/28/2014 - 10:47 | 4801738 CrashisOptimistic
CrashisOptimistic's picture

It's about no growth.

GDP rev is out tomorrow.  Pop on over and look at what they've done to consensus in order to get a beat. 

-0.5% consensus.

Nobody is talking about it other than yours truly, but it is damn hard to get economic activity when oil HAS BEEN NORTH OF $100 MOST OF THE YEAR.

Wed, 05/28/2014 - 10:59 | 4801812 CrashisOptimistic
CrashisOptimistic's picture

Just hit 10 yr 2.44%.

Japan is the norm.  They have no growth and import 5 million barrels per day to ensure they will never have any.

The US has a long way to fall to that normal level of interest rate for a zero growth economy.

Wed, 05/28/2014 - 11:08 | 4801885 CPL
CPL's picture

What's 2.44% of nothing though?

Wed, 05/28/2014 - 11:36 | 4801992 viahj
viahj's picture

let's see... 10% of nothing is (mental calculation).... nothing.. - Jane

Wed, 05/28/2014 - 11:10 | 4801891 LawsofPhysics
LawsofPhysics's picture

Shit, soon enough there won't be enough calories available for consumption to simply maintain the status quo, let alone grow.

Wed, 05/28/2014 - 14:06 | 4802526 SDShack
SDShack's picture

0zer0care Death Panels will take care of that. Just take the VA example and multiply it to infinity. I've said since day one, that 0zer0care is Soylent Green HC.

Wed, 05/28/2014 - 11:11 | 4801893 Tjeff1
Tjeff1's picture

Yes but "no growth" will also run head on into "price inflation" which will win? Don't know. But stocks will get slaughtered.

Wed, 05/28/2014 - 11:16 | 4801913 LawsofPhysics
LawsofPhysics's picture

Price inflation?  Priced in what?

Let me put it this way, there are 7+ billion people (and growing) on this rock all competing for a better quality of life and the commodities and calories that make that possible.

In short, there is still plenty of demand for goods and services of real value.

There is no monetary, fiscal, or political solution to scarcity, period.  there never has been.

Wed, 05/28/2014 - 11:38 | 4802005 Save_America1st
Save_America1st's picture

they got those really cool 3-D printers now, man...they can make anything with them.  It's just like Star Trek now, so they'll be able to print all the calories they want. 

See...no worries!

 

 

got Silver, bitchez??? ;-)

Wed, 05/28/2014 - 11:20 | 4801925 Al Huxley
Al Huxley's picture

The new American Industrial Base of the new American Century has no need for oil - what do LNKD, FB, TWTR, NFLX and AAPL need with oil?  This is the miracle of the new economy that will keep stocks soaring majestically to new highs, as bond yields continue to collapse, demonstrating why debt, and ever more debt is essential to stability and prosperity.

Wed, 05/28/2014 - 12:04 | 4802117 CrashisOptimistic
CrashisOptimistic's picture

None of those put food on the table.

Literally.

Wed, 05/28/2014 - 10:46 | 4801739 youngman
youngman's picture

strange indeed..very strange...something is up...why the rush to saftey????

If everyone is shorting...who is buying these new issues???

Wed, 05/28/2014 - 10:48 | 4801748 the not so migh...
the not so mighty maximiza's picture

Belgium?

Wed, 05/28/2014 - 11:02 | 4801837 disabledvet
disabledvet's picture

Wall Street is buying. They're shorting massively everything...including their own companies...but are in the whole for a few trillion on the treasury side of the ledger (levered 100 to 1) and are now being forced to cover (buy those treasuries) "at nosebleed levels."

We're heading towards total mayhem both here and in Europe. I would highly recommend turning the internet off for starters.

Wed, 05/28/2014 - 11:39 | 4802013 Save_America1st
Save_America1st's picture

Turn it off???  Shit negro, I gots my hot buttered popcorn and am ready to watch the fireworks go off!

Wed, 05/28/2014 - 11:46 | 4802035 maskone909
maskone909's picture

kettlecorn and some OE-800 bruh.  belgium was the canary in the coal stuff.  european banking crisis in 3.2.1...

Wed, 05/28/2014 - 11:33 | 4801977 CPL
CPL's picture

http://en.wikipedia.org/wiki/Bad_bank

They semi-secretly setup bad banks to the entire European, Australian, New Zealand, Canadian, Mexican, MENA banks, Israeli, Argentinian, Chilean, Brazilian...everywhere really, to dump all the debt into.  Hard to go wrong when you can put a single dollar into a bank with zero fractional reserve limit and print to infinity using shadow bank derivative rules (there are none, lol)

Basically the Fed was going to hang every single one of their partners and everyone in those countries. 

Remember they glued all the central banks at the head years ago to make sure the bad bank thing could happen.  And the only possible outcome of that arrangement is to destroy all of your business partners.  (fuck politicians are stupid, they agreed to it, ignorant fucks the bunch of them)  To do that while running the clock, you convince all the ruling idiot sticks on this world to play three card monte.  What they didn't tell the idiot sticks is the arrangement is built to be fatal.

BoA, Goldman, JPM made arrangements to wipe every last one of you out. If someone thinks they were going to make it out with the 'circus', they weren't.  To these people everyone but their own inbred, sterile blood lines are 'useless eaters' even the better dressed ones.

All the way up the chain across all economic strata.  Because it doesn't matter where you are, who you are or what you do.  It's been jerry rigged to implode totally and completely across all cross paired FX.  It's a 'Samson' option of financial trading. 

It's built to be an endgame no matter what anyone does.  No one was going to walk out of the Bank paradigm with a real nickle in their pocket.  (maybe except Kyle Bass, he's got rolls of real nickle Nickles before they were made with tin with nickle plating)

Couple of things:

  • Think Silver, Gold or BitCoins. 
  • If you are in a bank, don't be. 
  • If you have a RRSP, or 401k, or whatever 'tax avoidance' scheme, don't be.
  • Go call a credit union and move your monthlies to it. They are smaller and better adapted to shift to client needs quickly because it's going to be fast.
  • DO NOT TRANSFER THE MORTGAGE...let the 'future' bad bank keep that and you keep the house.

Only thing that TPTB can possibly do now is create a 'badder' bank.  LOL...won't get that far though.  Most of them should be in the jails they helped under fund with people they put there with their laws.

Wed, 05/28/2014 - 10:47 | 4801740 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

I need to go turn on CNBC in order to see what this means. whatever it is, it is bullish for stocks (ignore today's slight RED).

Wed, 05/28/2014 - 10:47 | 4801741 FieldingMellish
FieldingMellish's picture

Gold below $1260. No safety trade here.

Wed, 05/28/2014 - 10:49 | 4801752 Took Red Pill
Took Red Pill's picture

Why is gold dropping? Because they want it to

Wed, 05/28/2014 - 10:54 | 4801765 Zirpedge
Zirpedge's picture

The dumbed down deranged gold bugs have broken their illegitimate childrens piggy banks over the shiny yellow metal? Indo-China selling reserves to mobilize for war? When you say "they" it helps to once refer to a particular entity..they the rockefellers or jesuits..or annunaki

PS the red pill was a chemical lobotomy, a consolation so was the blue pill

Wed, 05/28/2014 - 11:24 | 4801944 Stoploss
Stoploss's picture

Run along retard.

Wed, 05/28/2014 - 11:58 | 4802091 Save_America1st
Save_America1st's picture

only tards use the term "yellow metal"

Wed, 05/28/2014 - 12:23 | 4802185 deflator
deflator's picture

 The same could be said for Chinese steel.

Wed, 05/28/2014 - 10:55 | 4801783 Kaiser Sousa
Kaiser Sousa's picture

"Why is gold dropping?"

because its goin into the close in London....

thought u knew by know.

Wed, 05/28/2014 - 10:56 | 4801797 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

they take their anger out on gold. it is some sort of stress management technique. 

Wed, 05/28/2014 - 11:07 | 4801871 Kreditanstalt
Kreditanstalt's picture

Because the system allows the playing of endless games with unlimited amounts of paper gold.  This will only stop when so many buyers take delivery that they run out of real gold with which to supply them.

Wed, 05/28/2014 - 10:47 | 4801742 Dr. Engali
Dr. Engali's picture

The treasury shorts are really going to be butt hurt when the ten year continues it's push downward twaords 1%.

Wed, 05/28/2014 - 10:49 | 4801755 CrashisOptimistic
CrashisOptimistic's picture

We're overdue for another SPR release threat.  It's about the only stimulus that can be injected now, and that might stop the yield fall.

Low growth; low yields.

Wed, 05/28/2014 - 11:01 | 4801826 machineh
machineh's picture

Well, if we have free money, why not free oil?

And free beer, while we're at it ...

Wed, 05/28/2014 - 12:03 | 4802114 Save_America1st
Save_America1st's picture

Free hookers and blows for everyone! 

Wed, 05/28/2014 - 10:53 | 4801775 Boston
Boston's picture

Repost (sorry) from today's other piece on Treasuries:

With the US 10yr just touching 2.45% while at the same time US equities are at all-time highs AND the big-money short Treasury trade still not unwound, I am even more confident that the 10yr yield has much further to fall. 

Imagine if stocks correct by a mere 10% (no crash, just a long overdue correction), and the scared money rushes to the safety of T-notes, yields will crash down hard....only leading to MORE pain for the short Treasury crowd, which will eventually cry "uncle" and get out....sending the yield down even further.

I wouldn't be surprised to see a sub-2.0% yield on the 10yr later this year.......so I'm staying long and will add on price pull backs.

Wed, 05/28/2014 - 11:05 | 4801859 disabledvet
disabledvet's picture

Imagine if the Chinese and Russians really do start a shooting war with one of America's allies.

The issuance would be staggering and that issuance would be bought massively.

Wed, 05/28/2014 - 11:14 | 4801908 Dr. Engali
Dr. Engali's picture

We are both on the same page. Rolled out of small caps into large caps and bonds  in the beginning of the year now I'm taking money out of large caps on rallies and adding into bond positions.

Wed, 05/28/2014 - 15:07 | 4802705 SokPOTUS
SokPOTUS's picture

Germany's 10-yr is at 1.337%; Japan's is at 0.586%.

Impossible to know the future; but mathematically; they could stretch that out into another two to three year creeping bond rally with the U.S. 10-yr still at 2.4395%.

 

Wed, 05/28/2014 - 10:48 | 4801747 agstacks
agstacks's picture

all these low yields show is that we have never in our history been a more qualified borrower. GO USA! 

 

{S}

Wed, 05/28/2014 - 10:49 | 4801753 Zirpedge
Zirpedge's picture

I guess I'm not the only one loading up the ol' MyRA account. If it's not nailed down, I'm selling it and rolling all my cash into 7yr treasuries. When I poke me head out in 2021 and see blue sky, I'll consider equities.

Wed, 05/28/2014 - 11:46 | 4802031 NotApplicable
NotApplicable's picture

Sad that someone can miss that bit o' comedy.

Wed, 05/28/2014 - 10:55 | 4801763 deflator
deflator's picture

 Is there a limit on how when factoring inflation yields can go negative?  Since there isn't such a thing as competing currencies in a unipolar world and the difficulties of changing WRC status quo, trading bonds sounds like a pretty safe ponzi to buy into right?

Wed, 05/28/2014 - 10:51 | 4801764 ...out of space
...out of space's picture

i think that jim rickard said that he expacte 10y yield under 1%

Wed, 05/28/2014 - 11:02 | 4801841 Tjeff1
Tjeff1's picture

link?

Wed, 05/28/2014 - 11:13 | 4801902 ...out of space
...out of space's picture

i will try but this interview was cuple of months ago

Wed, 05/28/2014 - 11:23 | 4801939 ...out of space
...out of space's picture

sorry. try on your on. it was somewhere around, when 10yy was 3%

Wed, 05/28/2014 - 10:57 | 4801807 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

I daresay it, but treasury rates seem to be the least manipulated thing going these days. 

Wed, 05/28/2014 - 10:59 | 4801816 Seasmoke
Seasmoke's picture

Go PIMCO Go. 

Wed, 05/28/2014 - 14:15 | 4802544 negative rates
negative rates's picture

Buy hook or by crook.

Wed, 05/28/2014 - 11:02 | 4801839 Doom and Dust
Doom and Dust's picture

If this reflects subdued inflation expectations or a flight to safety, why the fuck is the S&P at yet another high?

Bomb, bomb, bomb, bomb Belgium.

Wed, 05/28/2014 - 11:08 | 4801876 CrashisOptimistic
CrashisOptimistic's picture

It reflects Japan style growth.  And thus we'll get Japan style rates.

Wed, 05/28/2014 - 11:56 | 4802083 Doom and Dust
Doom and Dust's picture

No comparison at all, Japan has a shrinking population, so deflation and stagnating growth - though not in real income per capita - is what you'd expect.

The US, though, has a growing work force but a shrinking labor participation. Squaring the circle.

 

Wed, 05/28/2014 - 11:02 | 4801843 alien-IQ
alien-IQ's picture

and gold continues to get hammered to new 52 week lows....

Wed, 05/28/2014 - 11:03 | 4801846 mt paul
mt paul's picture

economic

sink holes

Wed, 05/28/2014 - 11:04 | 4801855 Seasmoke
Seasmoke's picture

Is Gold still the best YTD ???

 

/sarc. 

Wed, 05/28/2014 - 11:05 | 4801857 Tjeff1
Tjeff1's picture

I think the writing is finally on the wall that we are entering a recession.  The weather excuse is no longer cutting it.  Look for flatening.  

Wed, 05/28/2014 - 14:19 | 4802557 SDShack
SDShack's picture

It will be sold by the lamestream media as a Recession, or even a Double Dip Recession since we never regained the economics of 2007 (except for Wallstreet). But the reality is we have been in a depression since 2000. These booms and busts all just engineered noise in the system by TPTB to simply redistribute wealth from the masses to the elites. Same as it ever was. The end game is the perpetual ponzi, and they almost have the bond market cornered enough to pull this off. The New Feudal World Order is almost here.

Wed, 05/28/2014 - 11:06 | 4801861 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Gold getting shitted on by the tribe once again.

Wed, 05/28/2014 - 11:06 | 4801867 Bill of Rights
Bill of Rights's picture
Gold to fall to $1,100 then skyrocket - silver, platinum in behind

http://www.mineweb.com/mineweb/content/en/mineweb-fast-news?oid=242324&sn=Detail


At a most interesting breakout forum alongside the Bloomberg Precious Metals Forum on Friday, Peter Goodburn, Founding Partner of WaveTrack International presented his analysis of what will happen to the gold price based on Elliott Wave theory (for notes on the Elliott Wave principles see foot of article.) And there was something in it for short term bears and medium to long term bulls – with the latter definitely benefiting most if the wave pattern plays out as projected.

To an extent Goodburn’s projections support the views of those analysts who see gold falling back to around $1100 if the Elliott Wave pattern plays out as predicted, but not for long! He showed that the gold price has been following an archetypal Elliott Wave price cycle and that the overall ‘gold ‘supercycle’/bull market, is not yet complete and will see another surge which will peak at the end of 2015 or very early 2016. But in the meantime the price would fall to the projected low of $1096 (give or take a few dollars) as part of the fourth wave retracement down from the 2011 high of over $1900 - and this low point will happen in July/August this year (which would enable the bearish bank analysts to say I told you so!).

 

Wait for it!

 

https://www.tradingview.com/x/J1vzEXmG/

Wed, 05/28/2014 - 12:21 | 4802179 Save_America1st
Save_America1st's picture

I hope Ag and Au (paper) both continue to get hammered.  My cost averaging is going down, down, down while my stack size continues to go up, up, up.  This criminal paper price manipultion downward totally works for me as a phyzz stacker.  But if they hammer it too far down we're going to see massive supply shortages and/or record premiums.  The Crimex will eventually go bust. 

Stack as much phyzz now while you can and while supply is out there and premiums are low.  Once the SHTF and this monster turns around it's going to stampede all over everything in its path. 

Wed, 05/28/2014 - 11:07 | 4801873 buzzsaw99
buzzsaw99's picture

only muppets could be dumb enough to short Ts

Wed, 05/28/2014 - 11:11 | 4801894 Kaiser Sousa
Kaiser Sousa's picture

meanwhile, yet another v=shaped recovery in all the fucking fraudulent equity indexes....

farcical...

Wed, 05/28/2014 - 11:14 | 4801909 Amish Hacker
Amish Hacker's picture

Short squeeze in progress. Keep an eye on the Fail to Deliver numbers. With a shortage of Treasuries available to borrow, gamblers are going short without borrowing the T's first, hoping to cover later---and failing. The boys in the repo game must be running around with their hair on fire this morning.

As usual, ZH is ahead of the story: http://www.zerohedge.com/news/2013-06-17/following-surge-fails-deliver-t...

Wed, 05/28/2014 - 11:22 | 4801935 walküre
walküre's picture

Yields on rental properties in Germany are in the crapper. The "best" place to buy rental units is Wolfsburg with an average yield of 1.4%.

You want to know why everyone is buying USTs at >2%? Because there's no fucking alternative to get any return on fucking anything.

In the meantime the wealth balloon inflates greater and greater until it inevitably has to go boom. The wealth cannot be sustained, not even at 1.4% let alone >2%.

That's the real story. There are no yields in quality grade investments. Whatever is offering 5% or higher will get renegotiated or get a haircut. That's the road we're on.

Wed, 05/28/2014 - 11:38 | 4802008 First There Is ...
First There Is A Mountain's picture

Someone is bullshitting. Stocks or bonds. Which pool do the big fish swim in? The guppies? This is fear trade plain and simple....

Wed, 05/28/2014 - 11:48 | 4802041 gcjohns1971
gcjohns1971's picture

So...

Periphery nations continue to produce bonds - which have been very pressured, with increased yields and increasingly discounted face value.

The ECB has liquidity assistance mechanisms...

What if the ECB continued to accept Periphery bonds as collateral, despite obvious and continuing fiscal malfeasance, but sterilized the purchase by swapping the bonds with the US Fed in return for Treasuries?

This would amount to future QE, as the Dollars will need to be printed when the Treasury Bills expire.

For the EU Periphery and the ECB it would be an explicit statement that they WILL have QE (or the periphery nations will default on bond expiration, with no possibility of roll-over). 

But it seems to me this would allow them to delay the date of the QE by having the effects of the QE on peripheral bonds now, with the resultant increase in Euros to come later...

The UST's were already monetized...just not through "Open Market Operations".   Instead they used the ECB's account and 'created' the dollars there.

And in return, the ECB stakeholder banks (some of whom are the same banks behind the Fed) then use the proceeds to purchase stocks... supporting the S & P.

 

Seems elaborate.   But does it fit the evidence or am I missing something?

Wed, 05/28/2014 - 12:36 | 4802230 NDXTrader
NDXTrader's picture

I think you've got it chap. Add in the BOJ printing trillions in Yen and converting the $/Euros and then buying anything that moves you see why we have low yields on bonds everywhere and highs in stock markets everywhere

Wed, 05/28/2014 - 12:05 | 4802123 gcjohns1971
gcjohns1971's picture

Second thought...

SUPPLY AND DEMAND:

Money is going into bonds and stocks at the same time.  Not flowing from one to the other.

IMPLICATION - increased quantity of Dollars in circulation NOW.    When the supply goes up without a corresponding increase in demand.....

 

Could banks be using some of their excess reserves in an attempt to 'jump start' the economy?

Clearly someone is 'liberating' a lot of dollars that were previously somewhere (nowhere?) to bid  up both stocks and bonds.

Sounds inflationary to me.

Maybe it is time to invest in 'Real Stuff'?  ANY real stuff?

Wed, 05/28/2014 - 12:39 | 4802245 DR
DR's picture

You lever stocks and monetize that gain into tsy.

Wed, 05/28/2014 - 12:43 | 4802251 Save_America1st
Save_America1st's picture

They've all been saying that the massive amount of dollars that are stashed all over will eventually come out swingin' like a banshee.  And that once that money velocity got going hot we would then see the shit hit the fan and big-time inflation as all those dollars start rampaging throughout the markets looking for new homes. 

That might be now...might be soon...and it just might be the kick in the ass that the actual physical metals need to beat back the paper onslaught that's being used to supress them.

Get your phyzz stacks fortified now at these rock bottom paper prices, folks.  Yes, they still could go down further in paper price, but phyzz might be ready to explode and finally break away from the cartel manipulation.  Why try and time the bottom when it's not that far away at this point?  You could wait too long and the supply could dry up at that point while premiums explode higher to make up for the reversal that the phyzz is going to make once the paper bullshit scheme is finally broken.

Premiums could quadruple in a matter of a few days with no supply for several weeks...and it could go from a snowball to an avalanche in a real fuckin' hurry while the wanters of phyzz will be stuck on the sidelines as nobody will want to sell at any worthless dollar prices.

Personally, I want cheap acreage in the mountains for part of my phyzz once the SHTF.

Wed, 05/28/2014 - 12:09 | 4802135 SMC
SMC's picture

This is not low interest due to free market demand. This is direct monetization.

Soon we will be watching initial propaganda directed at convincing the public that it would be good to sell and/or use federal lands, interstates, parks, and other national resources as collateral for private bankers (owners of the Federal Reserve included) to support the dollar by "bailing out" the USA.

That may buy a few years, but once the FSA EBT handout will not purchase the calories to maintain their 300+ lbs (sarc) lifestyle and the FSA is sweltering, freezing, or simply uncomfortable, the bureaucrats will convince the politicians and their crony-capitalist masters to impose rationing, price and/or production controls that they, the "Just Us" crowd and the US war - domestic security machine will be exempt from.

After that there might be one more season of food available before the "centrally dictated" costs of production, transportation, processing, and refrigeration exceed the real costs of energy, feed, fertilizer, maintenance and labor.

No wonder the Department of Agribusiness wants machine guns and assault gear.

Wed, 05/28/2014 - 14:25 | 4802575 SDShack
SDShack's picture

Exactly correct. I call it the New Feudal World Order, and it is fast approaching. The Serfs will gladly live a minimal existence to just be entertained and have food and a place to live. Bread & Circuses. All the while, the all-powerful state uses it's security forces to quell any rebellion before it has a chance to spread. The evidence is all around us that this is the design, and the implementation.

Wed, 05/28/2014 - 12:43 | 4802263 DR
DR's picture

Good article. It would be nice if Tyler could report any increase in the Fed's reverse repo demand to see if there is some stress going on in the shadow collateral market..

Wed, 05/28/2014 - 13:55 | 4802490 katchum
katchum's picture

Why is gold falling when treasury yields are lower and inflation is higher?

Wed, 05/28/2014 - 15:16 | 4802732 SilverMoneyBags
SilverMoneyBags's picture

You might be making short term money from decreasing yeilds but long term these investors will get burned. Even a 1% hike is going to be devastating to many retirement accounts.

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