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Strong Demand For 2 Year Paper Confirms Yellen Dovishness
If there was any debate whether Yellen's testimony today was hawkish or dovish, the bond market certainly made it clear what it thinks, when first the 10 Year yield tumbled back under 2.00%, and then moments ago, the Treasury auction of $26 billion in 2 Year paper continued to trend of strong demand for government paper, when 3.45 bidders lined up for every dollar for sale, at a closing yield of 0.603%, 0.5 bps through the When Issued.
And once again, the surge in demand was thanks to foreign buyers, with Indirects, i.e. mostly foreign central banks, taking down 48.2%, Directs showing signs of life after tumbling to a year-low in January, at 13.27%, and leaving just 38.5% to the Dealers: the lowest allottment to the banking community since March 2014.
Altogether, hardly any indication that the short-end of the curve is worried about any rate hike any time soon. In fact, TSYs are comfortable betting that yields will hardly rise more than a few dozen basis points from here over the next 2 years.
Incidentally, the near record number of shorts coming into today's auction certainly did not get the hawkish collapse most were expecting. It remains to be seen if they cover or keep holding. As a reminder, 2 Year was trading super special at -2.8% in repo earlier today - about as bad as it gets.

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The Direct was higher and the indirect was flat. Foreign demand my ass, Janet.
Foreign was 48.2%, the second highest since February 2010
Yes sir.
Anyone know if Belgium is still buying?
Notibly the dealers are out. Is this because POMO is done flipping back to the Fed?
"No Banker Left Behind," Fed policy continues, while the Middle Class continues getting sodomized with zero percent yield on their savings.
Specifically, is the POMO desk still flipping the bid from PD to the Fed. I see your drift though.
"They borrowed in dollars...now they need moar of the debt (meaning collateral. Treasuries are collateral for MOAR )."
That's my view of what the world did excluding Europe circa Lehman.
I think what saved the US financial system was that the EZ failed to mimic the Fed and Treasury and indeed oughtright mocked the US rescue operations.
I think inflation in Europe is VASTLY understated...but we'll see.
Certainly no problem with Banks saying you owe them money for saving!!!!
Anyone buying euro denominated debt from some euro company is a NUT!
Apple dishing out a hundred...was it billion?...in euro based debt on the other hand...
Bloomberg reported the other day that US banks have added 2 trillion treasuries to their portfolios--add that to Fed of 4 tril, foreign of 6 tril and Socoal Sec and Medicare trusts of 6 trillion and thats 18 trillion which is the amount of treasuries o/s.
demand is high because its a closed system--the Fed must be forcing the banks to buy. Then does this mean nobody else of significance holds tresuries, and thats hard to beleive.
I say the data is all screwed up.
my neighbor's mother makes $86 /hr on the computer . She has been laid off for 10 months but last month her pay was $21128 just working on the computer for a few hours. go to the website... www.globe-report.com
Things are going well...winning!!!!!
So how the fuck is Gold and Silver Down ?? Actually why they are down since $1900 with all that has taken place since.
who cares when all you have to do is BTATH!
BEER COSTS $6/PINT!!!!
She only eats tuna on Tuesdays.
She's a cat food kinda gal ;)
Tuna taco?
Ummmm, what? Dovishness? We went from looking like the Fed didn't have a clue what it wanted to do to a road map for hiking in June/September. As your colleague below notes it's likely that the bond market is already starting to price in a slower economy due to a hike in rates.
Could get a technical recession too this is true.
The world has never seen such cheap energy prices as there are coming out of the USA right now though. Can equities correct forty percent here? Sure.
But "free energy" (for lack of a better term) IS a fundamental.
And that is not just a fact but a fact that even I can quantify...simply watch as drilling rigs collapse an energy output surges.
"Less is more"....right out of the textbook.
That means there is more CASH available however...not "recovery." Tax receipts have indeed improved markedly as well.
Considering where the USA was in 2008 ("On the Brink", H Paulson) this is very impressive indeed.
Collapse in oil prices says to me there is a massive collateral call going on.
That's treasuries.
Equities have simply clobbered fixed income and gold because they can simply go around the banks and borrow absolutely stupendous amounts of money in foreign currencies "with a negative yield."
Very good article in Forbes magazine about it. "The triple play" I think the article called it!
That still does not make me a bull...until I see how "Springtime for Hitler" plays out think I'll just simply watch the blackjack game unfold.
Doves are cool - Yellen is a horses ass
FWIW: I am inclined to believe that the Treasury bond buying binge is because investors are dumping out of other investments (stocks, junk bonds, etc) into "safe" treasuries on fears of a rate hike than more QE. If there was more QE coming than investors would be mor likely to buy stocks and other riskier assets and there would be sell off of US treasuries.
I noticed that since Jack Lew has taken over the Treasury that the fed has tapered further discussion of QE. I think the real man behind the control of the Fed is Jack Lew and that Yellen takes her orders from Jack. I doubt the Fed will ease until there is a crisis underway.