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Dealers Carry Weak 2 Year Auction; Indirect Bid Slides
While pricing right on the When Issued screws, or 0.540%, tied for the lowest high yield since October 2014, today's $26 billion auction of 2 Year paper was nothing to write home about. From a low Bid to Cover, which at 3.30 was down from March's 3.457%, and the lowest of 2015, to a slide in the Indirect bid to only 38.1%, also the lowest for 2015, to the highest Dealer take down of 2015, with commercial banks left with 47.8% of the short-end issue, there was not much demand for the paper which pays a 0.50% cash coupon and which matures on April 30, 2017.
Still, the lack of a tail is what the algos were looking at, and they got it. As a result the bid following the auction across the curve which has pushed the 3Y yield to the LOD, quickly erased any lingering doubts one may have had about the auction's strength.
And yet one thing is certain: when the maturity date rolls by, the Fed will still be scrambling to explain why, over a decade later, it still hasn't done even one rate hike (spoiler alert: snow in the winter).
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All the shiny is just awesome and where's the unicorn I was promised....
Heat in the Summer!
Fed needs to raise rates to remain credible. Nobody is biting and that is a faith based issue. There is no free lunch and nobody can have their cake and eat it too, including the Fed.
Why would they give a fuck anymore about appearing to be credible to a facade? I'd say they've moved on, and their credibility is now a function of controlling the collapse.
It's possible they fully conceded. Depends on who they have to answer to. No, I don't mean Congress. Higher up the food chain.
They were pretty open announcing various forms of QE. They reduced and finally stopped QE. All in the open. They have been saying that rates would rise. Whatever they have done in the past, has been announced beforehand.
There has been no announcement whatsover about possible further QE or stimulus. Combine that with the other cyclical and historical stuff... I don't think they're bluffing - regardless of what may happen.
Derivatives are the reason they can't be raised. The mega-banks like JPM and GS are heavily leveraged in them and right now they are easy money but even a 25bps raise could kill all the big banks at once if the market really starts oscillating.....
Could they not regulate the fallout from derivatives?
Go ahead and raise rates...
tick tock...
i'll bet the fed wishes t yields were higher so they could justify buying MOAR
Ah yes, the dreaded 'LOD'... Bow my head to the greatest tag team in history, the Legion of Doom - aka, the Road Warriors.