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US Treasury Admits Collateral Problem In Bond Market; Considers Issuing Ultra Long-Dated Bonds
We noted yesterday once again that The Fed was out en masse demanding investors sell their bonds because "bonds are in a bubble" but not stocks. The reason - as we have explained in great detail - is the repo market is broken due to massive collateral shortages (thanks to the Fed). Today, the Fed admitted it has a problem...
- *TREASURY ASKS DEALERS TO EXPLAIN REASONS FOR FAILS-TO-DELIVER
The tongue in cheek message of course is that the Treasury wants to know why all the dealers continue to be so short bonds (even as it urges 'investors' to sell). Furthermore, it is surveying dealers over the need to issue bonds of greater maturity than 30 years in order to fulfill collateral needs.
Via Bloomberg
The U.S. Treasury Department is asking bond dealers whether it should consider issuing a security with a maturity exceeding 30 years.
“Please comment on the demand for long-duration sovereign products,” the department said in a quarterly survey of dealers released today in Washington. “Should Treasury consider issuing a security with a maturity greater than 30 years?”
The Treasury also asked the dealers to explain the causes for an increase recently in “fails-to-deliver” in the market for U.S. government debt. The survey was released ahead of meetings planned for July 31-Aug. 1.
* * *
But why do I care about some archaic money-market malarkey? Simple, Without collateral to fund repo, there is no repo; without repo, there is no leveraged positioning in financial markets; without leverage and the constant hypothecation there is nothing to maintain the stock market's exuberance (as we are already seeing in JPY and bonds).
Crucially, it should be inherently obvious to everyone that the moves we see in the stock market is not about mom and pop choosing to invest in the stock market (or not) as the 'cash on the slidelines' fallacy is "completely idiotic' but about the marginal leveraged machine (or human) quickly jumping oin momentum.
The spike in "fails to deliver" highlights a major growing problem in the repo markets that provide that leverage... and thus the glue that holds stock markets together.
Wondering why JPY and bond yields have diverged so notably from stocks in recent days... repo effects (it's just a matter of time before it hits stocks)...
So that explains why the Fed is so desperate to talk you into selling your bonds - most notably the short-end by demanding you listen to what Yellen said about raising rates.. as that reduces the shortfall of collateral that repo needs and restocks the banks with repo-able funds.
* * *
Is that why a noted dove like Jim Bullard was so visibly hawkish last time?
The irony of course of the Fed explaining how rates will rise faster is that it spooks stock investors who have grown used to exuberant liquidity supply and roitates them to bonds... which merely exacerbates the problem the Fed has
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Plenty of 'naked shorting' of selected stocks in the stock market - and the SEC turns a blind eye to those even if they are supposed to be delivered at settlement -- so why should we be worried about failure to deliver some bonds?
This should help auto sales assuming they release a 30 year car loan.
We would need a 30 year note with the price of a nice car.a mustang loaded 80,000 a vette 80,000 Porsche 175,000 unbelievable but if they do a 30 year note then the takers will buy
30 year loan....get an updated model every 7.5 years.. 4 cars in total...how awesome would it be to get paid for a car you don't have to deliver for another 20+ years?
Ahhhh. The smell of failed credit markets in a debt based economy. "Pour more gas on the fire to put it out!"
Seriously?
Who in their right mind would load up on > 30 year US Govies at this point in time? Why not stop this BS song and dance and just issue them with a negative coupon rate! Investors would love it because they are fucking retarded these days ... negative is the new positive!
Regards,
Cooter
60 year bonds should go for ....say 3.7%.....BWWWWAAAA!
Funny how shy these Wall Street guys are ....
I would have thought they would go to the Treasury and ask them what they need them to do and not the other way around ....
some concerned public servant making 50 or 60 thousands a year goes all the way to NY to ask them Que problema amigo???
What these guys take us for? complete stupidos? this is insulting to the intellegence of the common man if there is such a thing ...
i guess nobody thinks they just read and repeat what they read ... ohhh welll..
Abso-fucking-lutely unprecedented display of dirth, barren financial knowledge. None, zip, nada, zilch.... Fucking pitiful.
A 1,000,000 year bond, a 3 year note, 6 month t-bills.... the maturity has fuck all nothing to do with availability for collateral standards.
It's a supply in loanable hands issue.
Can you borrow it? If not, you fail if you don't own it.
Who's got all the bills, bonds and note in their inventory?
The Fed.
Start a securities lending program.
No, not some crap about reverse repos, etc., but a real honest to God lending program.
Idiots.
Fucking Idiots
And these are supposed to be the people understanding this shit
Pitiful
It would appear this is the Fed attempting - yet again - to get in front of the impending tsunami by shaping the conversation and assigning presumptive ownership for what is now occurring.
Their models must be unable to identify what is causing this anomalous behavior...guess they need moar explanatory variables/models to enhance the view from the ivory tower.
Perhaps it's a macroprudential regulatory issue.
No one wanted 100 yrs., back in the 90's, when debt levels were lower.
What quota monkey at Treasury thinks the current collateral shortage would in any way be mitigated by the issuance of ultra long term debt, or that that is a remotely acceptable or appropriate lie/cover story?
I'm still amazed at how they conned so many into leasing. Of course, 2 of them went broke doing it.
Why doesn't the FED just go ahead and sell tickets to the short covering???
They might be able to buy two or three after it's over..
Excellent point. Why isn't the SEC or the FBI prosecuting anyone who is 'naked shorting' US Government bonds? Could it be because the NY FED is the one providing collateral to the parties engaged in this activity?
To give you an example, an everyday occurrence. Today, at 11:55 yields on long-dated US treasuries started moving up, a total of 2 basis points in 20+ minutes. This move was almost symetrical, like steps in a stair. The same was observed in the stock market index, who performed a well choreographed 45 degree steady climb with constant volume during that time.
The time it happened "coincides" with the NY FED securities lending operation - where they lend treasuries to primary dealers.
The same type of reaction usually occurs during reverse repos, from 12:55 to 1:30PM. Wouldn't be surprised if it happens again today.
serious question
is naked shorting illegal? so i cant go sell calls that arnt covered? or puts for that matter too?
edit
sorry i never trade options
It's not illegal, but you would need demonstrate a high level of financial resources to your brokerage firm to get approval, as they would be responsible to cover if you couldn't. (naked shorting may be illegal, but not selling uncovered calls)
Last time I looked, NO. You can do so in the futures market. And there is options trading on those futures as well. I haven't traded in a while though, so not up any rule changes.
What I am trying to figure out is what these ZH articles mean by "fail to deliver", which is one piece of the food chain. Is this a failure to deliver in the futures market, where a contract comes to expiration, the long side of the trade demands delivery (instead of liquidating the position), and the short fails to deliver?
Or are we talking about fail to deliver in a different context?
Dear pakled... you are smaaaart.
LOL. But not smaaaart enough. I'm hoping to lure some of the bond traders that lurk here to explain some of the details of this collateral food chain. ZH sometimes speaks over the heads of folks who don't live in these markets. No one understands financial markets better than bond traders.
And Janet is holding up this entire house of cards?
Brilliant
Woo Hoo! Hallelujah! I'm an old guy who no longer wants to risk my life savings in stocks. If this becomes a real problem then the Fed will have to sell some bonds. This will cause rates to rise and finally allow me to have the retirement I deserve.
WWIII beginning. Stocks rally.
Reading financial news has become funnier than the Onion's satire.
So is everyone on the same side of the bond boat?
pods
Toilet paper and candy bar wrappers should be accepted by the Treasury as collateral -- easier to deliver than T-Bills and more reliable.
What a game of cat and mouse. The rehypothication of this countries debt and making look like money is amazing. Wonder if I can Rehypothicate my money and not go to jail?
No Boss. You would go to jail. You would go directly to jail.
All the 'get out of jail free' cards have already been distributed.
then obumer can give me one and I'm off to the races!
Just ask for a special dispensation, and he'll be happy to oblige.
You shouldn't read it as the US Treasury "asking" the primary dealers for explanations, it reads much more like the US Treasury asking what the primary dealers want them to do to fulfill their own trading objectives.
Why aren't they asking institutional holders what they want? I mean, they are the only ones who hold this paper long term.
Why would you ask the parties that short the government bonds your issue? It's like the lamb asking for advice from the wolf....
100 years. ..... it's time we hit triple digits.
Now that would just be plain crazy. Gotta go with 50 first, as the financial sheeple require baby-steps in order to maintain confidence.
I've been waiting for this day to come for years. ZIRP absolutely demands it.
Fifty- and hundred-year bonds are for pikers. Go with the British "consols," which are perpetual bonds, i.e. they pay interest forever, but never mature. An easy way for a government to borrow money without ever having to pay it back.
Can't have anything legal over 100 years. Only one exception to that, the FED mandate which is "In Perpetuity".
lets try them in mortgages first
But the algos DON'T CARE, so it doesn't matter.
Funny how these little "technicalities" keep tripping up this massive manipulation scheme isn't it?
Intricate.
Everything the Fed did was good for stocks until they crossed the top of the bell curve. There are no good levers left to pull. They all have bad consequences now. If they want money in the system, they have to print it. They cannot stand behind the scenes and pull strings. They must get on the stage and dance. They must directly participate.
Wow, from a Kabuki show to a chorus line. That would be quite change.
The 1,000 year treasury bond @ .50%. LMAO.
These sociopaths just won'quit.
Stop it. You're killin' me.
seriously.. the alternating laughing and crying I do as the news comes in is making me think i'm bipolar.
Too much currency chasing too little value in shorthand.
They will have to force the US banks(or pension funds) to take the long end notes.
Anybody with any sense, is standing by the emergency exits at the short end.
Why don't they simply use them for the SS Trust Fund, and then mark them to fantasy when the bond market explodes?
"So that explains why the Fed is so desperate to talk you into selling your bonds - most notably the short-end by demanding you listen to what Yellen said about raising rates"
Why should anyone listen until the FED actually raises the rate? As some say here, the FED will never raise rates.
if the fed raises rates demand for short dated Ts will INCREASE. what they want is bagholders for the stock market. they should just point a gun at us and force us to buy stock.
Nah, too complicated. Just confiscate our money (for the children!!!).
Interesting, Why doesn't the fed just start selling their bonds!!!!! LOL
^^^lmao funny shit there^^^
because they have rehypothicated them
a few too many times...
In the 17th century Spanish bonds, called juros, were of 30 year maturity usually funded by Jewish bankers in Genoa, Sienna in Northern Italy.
Spain had overspent on its military adventures and the juro bondholders got their interest payments when the Spanish armada arrived in the fall with ships laden with Peruvian,Ecadorian,Central American gold and silver. One year the treasure was equal only to the interest payments leaving the Spanish sovereign treaury with no funds. The king told the bankers that he would sell them 60 year juros. The bankers declined, Spain was broke, this was the end of Spanish ' high tide' of having the reserve currency, the Jews got kicked out of the country, again, and the Netherarlands and France took over as the leading powers.
Seem familiar?
And I don't think you can fault the Jewish bankers for the Spanish monarchy's ill advised, extravagant military policies.
Re: And I don't think you can fault the Jewish bankers for the Spanish monarchy's ill advised, extravagant military policies.
Depends, are we talking about the people with "Not My Facial Topography" OCD, or normal people?
Sorry, I don't understand the allusion.
So your saying the banksters will leave if the USA goes broke?
In the Spanish Empire's case described above... Three times
Nevertheless, the Empire held together
And I don't think you can fault the Jewish bankers for the Spanish monarchy's ill advised, extravagant military policies.
Who funded that military with 30 yr bonds(IOU's)? Same story, different century.A simpleton answer.
The Spanish kings in the 16th centruy, drunk on their new found South American riches attempted to conquer Europe ; they overspent on these military adventures and needed to borrow mightily; the Italian Jewish bankers obliged them.
Different century, different story.
In my story the tribe got banished and were just the lenders, they did not control the levers of power. However, the Empire still overspent. Empires always overspend.
Extend and pretend...
all treasury holders will be given GM stock to replace the Ts that will be stolen
I'd be tempted to wipe my ass with it, but the GM stock would probably explode.
Moronity on zero hedge about collateral shortage continues.
For any legal problem like this solution is simple: change the law or don't implement the law.
Law is dead.
Stocks and bonds no longer depend on repo. They depend on central banks.
The government will pick losers and winners as always.
Exactly. It' been this way since 1971 by the way.
"Full faith and credit"
glad I went long sharecropping and black markets. very clear that there are "official" economies and then the real economy.
tick tock motherfuckers...
I fear assassinations of executives on USA and European streets is imminent.
When gov picks winners and losers, losers with cojones may lose their mind and exert revenge
Replace "fear" with "hope," and I agree with you.
Forever bonds coming again... and negative rates.
Great, I'm going to add them to my Forever Stamp retirement strategy (e-mail for my free newsletter).
i'm going all in local canteens lunch vouchers!
Oh this is so perfect.. What a great example of the can kicking. Longer term bonds. I'm going for 300 Year Ten American Generation Freedom Galaxy Patriot Ultra T-Notes.*
*Not available to the general public, only sold to the Fed, interest rate is fixed at 0.00001%
Please no.... You're giving them ideas.
Next thing you know when they inact thost 'voluntary' myra accounts they will load up on those Galaxy Patriat Ultra T-Notes. And then advertise with some moronic old person telling us how safe and secure they are, and pay a great rate too!
they are short Ts because they are long on garbage risk. Until someone (muppets at gunpoint if need be) buys all that risk from them at inflated prices the stock market will keep going up.
Following Japan's lead...
fuckers.
i saw a pie chart of calsters portfolio the other day. oh. my. god. the gpif is very very very very conservative compared to the clownifornicator pension funds.
57.3 % equities as of May.
something like that and a pitiful bond allocation. Compare that to this [source: wsj]
TOKYO—Japan's $1.16 trillion national pension fund, the world's largest...
But the portfolio adjustments, announced just as the market closed, were relatively modest...
The changes mark the first rebalancing by the fund since 2005 and will raise their allocation of domestic stocks to 12% from 11%. Foreign stockholdings will also increase to 12% from 9%, while foreign bonds will rise to 11% from 8%. Domestic bonds, composed primarily of Japanese sovereign debt, will be reduced to 60% from 67%. The remaining 5% is in cash or short-term assets...
CRAP! wrong article!
[source wsy june 10, 2014] TOKYO—Japan's $1.26 trillion public pension fund will likely announce a boost to stock and foreign-bond investments in early autumn...
"I personally think that we need to complete [the new portfolio] in September or October," Yasuhiro Yonezawa, head of the Government Pension Investment Fund's investment committee, said in an interview. "There's no reason to be slow."...
Currently, domestic stocks and foreign stocks are each targeted to get about 12% of the fund's investment. Under the baseline scenario outlined by Mr. Yonezawa, those figures would rise to 17% each, while the portion allotted to foreign bonds would rise to 16% from 11%. Domestic bonds would fall to 40% from 60%, and the portfolio would likely include a new category for alternative investments in areas such as infrastructure, he said...
from this the stock markets will not go down until after october (if ever) imo
Which can only mean, here comes Zimbabwe.
Yup, 15.8% fixed income.
mmmmmmmmm
pie.....
The Govt proactively never asked Madoff about "fails to deliver". Maybe the new BRICS bank can establish a swap with the Fed?
They should just issue "perpetual bonds" that never pay off, because to paraphrase ZH: "On long enough time line, the rate for every bond drops to zero." Problem solved. :-)
How about one million year bonds? They are as likely to get paid as any other US junk debt
The uberultra bonds will be printed for and held by official Obamacare insurors. The churn you are accustomed to, will continue, effectively unabated.
Taper. Bitchez.
... I dunno.
They defined High Quality Collateral as Cash and Fungible securities unlikely to go down in value.
What the hell were they thinking? Securities go down in value all the time!! Since the dollar began its float 40 years ago, its value has been nothing more than a psychological expression of confidence.
Why do they want long securities?
Obviously so that they don't soon have to print money to repo them...
They know bonds are going to crash in the post QE world. They've been the whole T-Bill market at times. Why would they epxect a normal market to appear when they stop?
But....
If the duration is long then the Treasury can mark to fantasy all the IOUs in the SS Trust Fund. This view implicitly accepts that they know the market is going to discount the face value of foreign held Treasuries. Going long is simply one way to not have to book the loss under mark to fantasy.
A better question would be...
What happens to the value of cash when the Euro Dollars come home and the market discounts T-Bills? How do they prevent a scramble for real goods, a.k.a. hyperinflation?
Why do you think there will be hyperinflation during a credit collapse?
Cars only cost $50,000 because a certain class of people can only afford a $50,000 car if the $50,000 is chopped into 97 payments.
they don't, but they do open the doors of the FEMA camps...
all by design.
"Destroy the dollar: instant collateral!"
That's literally what Ben Bernanke said..."we have a printing press. We want inflation."
Appears sometime on or about a year ago he changed his mind though and decided to taper.
Now all paper currencies are looking "squishy" here.
Where is Uncle Adolph to set things right again?
One man's car payment is another man's pension payment.
One women’s school loan payment is another woman’s pension payment.
And the beat goes on….
Looks Like Somebody was selling more than just the same Golden Cow Twice..
Buzz you've got it Right....It's about "Bagholders".....
But No Gun is needed......Only Human Nature.....
WTF !!!
TREASURY ASKS DEALERS TO EXPLAIN REASONS FOR FAILS-TO-DELIVER
Here is your answer: You people are fucking idiots.
I have some trillion dollar coins I can lend you overnight.
They cant deflate money fast enough over 30 years so they want to go for 60.
Somebody throw these crooks out!