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Strong 5 Year Bond Auction Has Record Low Dealer Takedown, Directs Surge
If yesterday's 2 Year bond auction was a snoozer, today's 5 Year was anything but. First, the pricing was solid, and while the high yeild of 1.72 was the highest since May 2011, it stopped 1.2 bps through the 1.732% When Issued. The Bid to Cover was also solid, rising from 2.74 to 2.81, the highest since March and now appears to have decisively broken the downtrend in BTCs seen through the end of 2013. The most notable features of today's auction however were the internals, where we saw the Direct takedown soar from 9.3% to 25.9%, the second highest on record and only lower than the 30.4% in December 2012. And while Indirects were again flat like in yesterday's auction at 48.2%, it was the Dealers who had to make space, and the resulting Dealer allotment of 25.9% was far lower than the 38.2% in June, and the lowest in auction history.
So yet again: if many at the Fed are expecting 2%, 3% and even 5% Fed Funds rates in 2016, the 5 Year auction begs to differ, and either someone is very wrong or in the coming two years the curve will steepen so much the only debate will be whether it is a double dip recession or outright depression.
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And 5s and 7s are usually the tough auctions.
Huh.....
"What difference does it make?!"
Consequences bitches!
Hedge funds are short the fukk outa the belly of the curve...squeeze the prikks!
200 trillion in unfunded liabilities = fed funds rate below 1% till the dollar reaches it's intrinsic value of zero (like our president).
Wow! $200 trillion in unfunded liabilities. That's a real big number. Is that over the next year, 10 years, 50 years or 200 years? You do know that the entity who fed you that unfunded liability bullshit expects all future liabilities to be paid for right at this very moment, right? It's the like US Postal Service nonsense. Make them obligated to pay future liabilities on future employees they may or may not hire, and make them pay now. If the US Postal Service can't, it's proof their incompetent and bankrupt. Pure bullshit!
Stop helping the oligarchs Dr.!
You do realize that we have to take on moar debt to fund these liabilities don't you? Now who is the one supporting the oligarchs in a debt based monetary system? Think before you answer.
Really, more debt? You are assuming not one penny of funding will be available. Come on Dr. It's obvious you have no idea if these obligations are unfunded or underfunded and if they are underfunded, where those primary funds come from.
Big numbers without context are pure bullshit. It's how the oligarchs separate the middle class from their money. You are helping the oligarchs by spouting off what your radio has told you.
Is it bolted down? Then BUY it, you schmucks!!
super bullish!
Every downtick is a screaming buy. Get your spoos on the cheap while you still can, its not a question of if we are going higher but how much higher and when will the next new highs come, this bargain wont last forever!
deflation, depression, defaults
What we've got here is... failure to communicate. Some men you just can't reach. So you get what we had here last week, which is the way he wants it... well, he gets it. I don't like it any more than you men. [/Cap'n, Cool Hand Luke]
This is yet another article that makes me want to learn far more about bonds/bond auctions than I currently do. Does anyone have recommendations for books/websites/articles to get started?
If someone is in giving mood today, can you please explain what the last paragraph means (i.e. how might someone be very wrong/why will the curve steepen so much)?
Thanks in advance.
generally the longer duration on the note/bond the higher the interest rate. this is called a normal curve.
the fed fund rate is on the short end (overnight) when that rate is higher than the long end it causes what they call an inverted curve. very bad ju ju
what tyler is saying in that last paragraph is that today's bidders on the 5y ust note do not believe that the economy is improving because they are willing to accept such a low interest rate. If the fed raises rates in that environment it would wreak havok on basically all markets (stock, bond, housing, currencies, etc.) which is why Tyler is calling bullshit on those who say the fed will raise rates.
(imo the recent 30y (3.26%) action is the one calling bullshit the loudest)
Very well said. I am 70% bonds (mostly leveraged munis at 8.5% ) and this is reassuring.
I have only 2 problems with it.
1. Pension funds need higher rates. Thats a lot of money.
2. Maybe the Fed has finally figured out that killing savers with 1% CDs is killing the economy, consumers being 70% of GDP.
Thoughts?
Thoughts?
Oh yeah. We've been debating various interest rate scenarios for years here. I doubt I could comprehensively relate my opinion on the matter in just a few paragraphs so I will just say that imo there are worse places to be than ig and t bonds going forward and I do not fear the rate-reaper at all. Any spike in treasury rates will be temporary and a buying opportunity otherwise it is teotwawki. However, currency value is the horse of a different color and that risk should be hedged in one way or another. of course munis aren't teasurys so that is a consideration as well.