This page has been archived and commenting is disabled.
As Primary Dealers And Banks Bash Treasurys, Here Is What They Are Really Doing
While stocks continue to levitate to record highs day after day in a market where selling is seemingly prohibited, there remains one major fly in the ointment - the same fly that as we described yesterday has managed to "paralyze" asset managers - namely plunging bond yields, i.e. surging bond prices, both in the US and in Europe. The problem is that since stocks are supposedly "pricing in" a recovery, it makes no sense that bonds are concurrently pricing in accelerating deflation and a global economic slowdown.
This is further compounded by the fact that all major banks are, at least superficially, extremely bearish on bonds: at the beginning of the year, when the 10Y had just hit 3.0%, there was barely a sellside research report that expected the 10 Year to be below 3.5% in 2014, let alone touch 2.4% as it did today.
This is a glaring disconnect and is the reason why pundit after pundit on CNBC is screaming to ignore bonds, and better yet, sell or short them (ignoring record short interest and the ongoing squeeze), while focusing only on stocks, also ignoring that in several decades of market history bonds always end up right compared to stocks (then again, this is "market" history, not the centrally-planned, New Normal Greenspan-Bernanke-Yellen Frankenstein monster market) sooner or later.
But going back to the question about this same "smartest money" which in report after report can't find bad enough words to say about bonds, is there more here than meets the eye.
As it turns out yet.
A quick look at the Fed's Primary Dealer database shows that while banks have been actively dumping their holdings in the near-belly end of the curve, namely paper in the 3-6 year range, they have been buying up bonds in the 11 year + maturity bucket.
As the chart below shows, while Dealer holdings of bonds in the 3 - 6 Year bucket are down to -$12.6 billion as of the latest week of May 16, or the lowest position since June 2011, they have just taken their holdings in the 11Y+ long end to $11.9 billion: the most long they have been in the farthest part of the curve since June of 2013.
So if one were to net these two buckets out, by subtracting net exposure in the 3-6 Year bucket from the 11 Year bucket, one would see just how "flat" or "steep" dealers are positioned. The result is shown below: it shows that a rough estimation of curve positioning has Primary Dealers positioned for the flattest bond market (long the long end, short the short end) the most since November 2011 when, as many will recall, Europe was on the verge of complete collapse and only yet another Fed-backed global bailout prevented the all out disintegration of the Eurozone!
Bottom line: while dealers are telling their clients to dump the long end immediately due to everyone mispricing economic growth and inflation prospects, and to expect the long awaited curve steepening any minute now, what are they doing? They are the flattest they have been in two and a half years! In other words, buying.
And one other observation: if one expands the universe of bond holders from just Primary Dealers to all commercial banks operating in the US (as reported by the Fed's weekly H.8 statement), what does one get?
One gets the following total Treasury exposure. It needs no explanation.
Source: New York Fed, H.8
»
- 13846 reads
- Printer-friendly version
- Send to friend
- advertisements -
Do as we say, not as we do.
Wait just a fucking moment....I thought the Fed bought up all the treasuries? And the banks own all the stawks
Huh
AND they are attacking commodities to weaken the newly emboldened Russia and China and their pointed geopolitical move into a post-American world as the dominant powers. The banksters are running out of ammo and the other powers in the world know it....
The New Cold Gold WarI don't think so John. China is selling currency and buying our bonds for return, and then most likely selling commodities to keep them from getting too expensive.
China is in a world of hurt.
'Return' - good one. Your post seems to assume that everybody in charge of government financial and monetary policy in China is mentally handicapped, or was educated by CNBC.
who in the world will they unwind all those long-dated treasurys on?
I mean, if they are paying diddly-squat percent now, you would have to sell them to somebody who would accept less than diddly-squat percent, and who would never be able to unload them ever
that seems impossible at first. but maybe there is a way it can be done. if we all work together.
hugs,
myRA
Uh, you obviously do not understand a 2 percent return on infinitely zero cost. Their leverage is spectacular. They then take that money and short commodities. I am a private banker and would take that trade all day long. Invest counterfeit money for a 2 % return. Who cares if you never get your priniciapal back. Are all Zero Hedge posters this stupid?
You are a ZeroHedge poster, so I think the answer to your question is no, since you are making sense to me. ;-]
Take the 2% arbitrage, use it to short the commodities you are buying on the physical level. Stocking up, yep.
I wouldn't say they are in a world of hurt though. They have the gold. They have the rare earth metals. They have the Ruskies.
If you knew that your property bubble was about to implode you would be buying USTs as well...
These bankster criminals know housing prices are a sham and cheap home financing is vital to keeping the ponzi going a little bit longer,...it's spring buying season. Am I the only one who sees this ?
Or is it that they know the fed will prop up the bond market at all costs even if they have to throw in the towel on the indices?
Yes.
Lonely idnit.
Yeilds go down, bond bear slaughter ahead.
"The trader drives his motorcycle 200 miles per hour. The Banker has a driver under orders to take his time."
It is ironic but unsurprising that CNBC is "of, by and for the traders." (The sell side.)
They simply are incapable of turning that coin over and explaining to the public who in fact the buy side is.
"If it's shit on a stick...we're selling it."
I recommend the rest of you folks do your homework.
Once the money is gone...it's gone forever.
To any policy makers still left out there all I have to say is "it not only could be worse but in fact was suppose to be."
Forget The Big Short...the folks who blew up Wall Street in 2008 (cough, cough-Wall Street-cough, cough) were hoping and praying (and betting) for something far worse.
Now they have Theta Burn...good luck eating your own cooking now phuckers.
In other words, they are rotating out of equities.
All those poor sods with money trapped in equities via IRA's/401K's/Pensions, sheesh.
They are going to do it again; crash equities and rake the little people's chips off the green cloth.
Pump & Dump, it's the sociopath banker's way.
That would make sense, if it were true, but according to the charts and stuff above they're just extending maturities, and/or seeking yield by taking on risk, can't really tell which.
Risk? Nah, it's just the next load of goodies to sell to the Fed.
RICO, anyone?
Next load of goodies they sell to the Fed at more then par. It's well documented that the banks make way more on the float then on the interest.
it's the New Normal.. my dad explained it to me back in 2009' (he has an MBA) LOL.. i call it simply FUCKED..
big bank stocks are worthless and they know it
The creditor is above the debtor, yes?
so, its just the banks, Belgium, and the Fed buying this shit paper????
help me out guys..
Back in the 1950's 50% of bank capital was held in UST's.
Currently its around 12%. The FedRes has been caught out with their straw buyer Belgium.
The FedRes can make the banks make up that phantom taper by making them buy UST's.
It will bring down the stawk market with a big crash , but prop up the dollar for a while under
normal circumstances.We don't have those so its a temporary hail mary only.
The plates are about to drop, and its going to look like Zorba the Greek had a party
after it does.
whether it is belgian banks or the uk banks doing their bidding the usual suspects are always at work. only foreign governments and central banks can raise that kind of clownbux without roiling other markets. generally they are friendly with the fed but they also seek to manipulate currency markets in a perverse manner to obtain their own ends.
Bawnds? Fuck bawnds....what you need is sum stawks obviously!
Why? Stop asking so many questions and get back on those oars and ROW, damn peasants!
Fuck the NY Fed and all their bullshit.
Read what Jim Willie has to say ...
Clearly, the Belgium Bulge indicates a late stage of collapse. The game is fast changing, using big hidden channels in the monetary war.
http://news.goldseek.com/GoldenJackass/1401423813.php
Jim Willie is Da Man!
That is off the wall even for him. A 10,000 tonne gold call option for delivery with
the EuroClear UST's as the margin account..
It would nuke the entire western banking system in one stroke.
I need a bigger tin foil hat.
Stop thinking about yield and it all makes sense - stocks go up quickly, so you make capital gains fast, but once in a while they drop 10% before the keep going up, so they're 'risky'. Bonds go up all the time (yields drop) so you make capital gains slowly, but they're less 'volatile' so your capital gains are more certain - well suited for risk-averse widows orphans and pension funds who want that security of 'income' (ok, so it's no longer income, but if the price is constantly and consistently rising, its as good as income for those risk-averse buyers, right?)
Just change your mental model and it all makes perfect sense.
Yet they are (and have been) massively short on the long end in futures and who knows by how much in off balance sheet derivatives...
Don't buy the argument for a second. As soon as securities lending and reverse repos start at the NY Fed, treasury yields are at their worst of the day.
Well I used to think the only good stock trade was short.... Look how well that panned out..
The day will come for the bond bears but it is not here now, there are more dead bodies in the ditch from bond bears than any other trade in history.... and they keep getting killed.
Where are JGB's at now? the 10 year UST should easily be able to match that yeild.....
DO NOT SHORT BPONDS!!!!!!!!!!!
You will get killed!
Just do not do it except for a trade....
The long term trend is down in yeilds, when it changes there will be lots of time to get in, like years.........
This is not a market to try and be a hero, it just don't fuking work, I don't care what anybody thinks......
Money talks and money says if you cannot buy them, just dont touch em.........
Good luck trading everybody.......
Did YOU mean " As it turns out YES." ???