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Bond Market Begins To Panic: Bids For 4-Week Bill Auction Crater, Yield Spikes
Less than two weeks ago, when previewing the upcoming debt ceiling battle which is shaping up to be far more contentious than most expect, we said to "keep an eye on T-Bill yields for the turning point when the market decides this situation is becoming serious."
Things officially turned serious yesterday, when as we reported, T-Bill yields spiked after the latest Jack Lew warning that the Treasury's emergency measures would be exhausted on November 3, or in less than 2 weeks, leading to a surge in mid-November T- Bill yields
But where the "serious" crossed over into "panic" territory, happened moments ago when the US Treasury sold $5 billion in T-Bills.
As expected, after five weeks of 0.000% high yields, today's yield soared in sympathy with what is happening in the secondary market.
But where it became decidedly clear that while stocks continue levitating without a care in the world, the bond market is now convinced that the 2015 debt ceiling fight will be worst than both the 2011 and 2013 iterations, is in the number of bids tendered into the auction.
At just $22.4 billion, this was less than half last week's $48.3 billion, and about 20% of the last year's $127 billion averaged tendered bids. This plunge in demand was below even the 2013 year-end debt ceiling fight. It was, in fact, so bad that it was the lowest amount of tendered bids since October of 2006, when central planning was merely a gleam in Ben Bernanke's eye.
The question becomes: what does the suddenly panicking - and revolting - bond market know about the debt ceiling showdown in 2 weeks that equities not only don't, but obliviously refuse to care about?
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Bonds leading equities as usual. The S&P just pulled off the worst thing it could have done
http://www.goldsqueeze.com/analysis/the-worst-thing-that-could-have-happ...
“Things officially turned serious yesterday,”
Time to lie.. oh wait,
for them it is always time to lie.
Ho hum, another day, another overdramatic headline by ZH. The bond market is as bubblicious as it's ever been. There's a tiny blip in rates based on debt ceiling concerns, just as there was a blip in rates based on the fed starting to raise rates.
Nothing meaningful will happen to the bond market, or the housing market, or the stock market, or the gold market, or any market, until the USD collapses. As long as USD is trading above 70, you can pretty much skim over every headline on this website. I know I am.
You have a really good point! The dollar strength underpins the bubbles, and as long as it holds strong, all the blips and hick-ups will remain under control. I believe that the dollar is so important to this long term bubble that the USG would contemplate a major war if they thought that that would somehow secure dollar hegemony for a further time.
I have just been reading an economic history of Great Britain in the 1950-60's. Needless to say Sterling was NOT a reserve currency. The UK woke up every day faced with fears and juggling acts to try and balance the Sterling and prevent devaluation and loss of confidence. None of this is happening today in the USA, because we do have dollar hegemony, world reserve currency and a printable, without inflation, currency.
Nuke'em from orbit, it's the only way to be sure......
Wishful thinking
Moar fear mongering in US sov bonds.
"Take your money, you patriotic pseudosocialist, and stick it in dem stocks." [WWIII US Liberty stocks poster slogan]
I've taken to calling them panic bonds since that's whats happening, but it should be true fun when the American economy takes a crap......
Yawn, more theater of the absurd. After keeping us on the "edge of our seats", the debt ceiling will be raised as usual
What he said. ^^^^^^^
Engali, of course you are right.
I just have a question that may or may not be related.
The Fed is not a federal entity, correct? Then why does its address read as follows:
http://www.federalreserve.gov
Was it always at .gov? Wasn't it .org or some such before? Could it have been quietly nationalised? And if so, what implications will that have for the Federal Reserve Note, which could be affecting this move?
OK, that was a few questions for the price of one. But if this turns out to be 'different this time', I'm wondering if moving the Federal Reserve officially into the government (if that's what happened) has anything to do with it. I'd appreciate some education on this... do you know?
It's the federal reserve they could have whatever URL they want pal. It's just an address that directs you to webpages on a server it doesnt mean shit.
Go do your homework and come back to class with your answers.
WTF do you prefer? .god?
They did used to be .org They are "private" on paper only. Maybe they decided to quit pretending
http://afr.org/is-the-fed-a-private-corporation/
yes, and eventually central banks will own all the sovereign debt as well as all fraudulent bullshit paper (like MBS etc.)
YAWN. it is irrelevant
When the supply lines break then the world goes to war in earnest.
same as it ever was.
LawsofPhysics - Correct, times began to be harder back in 2001. Rough from 2008 until now, the last acts even rougher economically although we should see some daylight in 2016, followed by 2 very hard years of debt restructuring and deflation in 2017/2018 and WW3 starting in 2018 based on my estimation, culminating in a nuclear exchange in 2021. I hope I am wrong but unfortunately my forecasting is prescient. I study cycles but not all things can be called on details. I hedge accordingly and so should readers.
You do that by going to the gym moderating habits now, some spirituality also useful which includes mental preps and being excited about mans future beyond such awful times. Get three months of beans, water purification and arms to defend yourself. Learn to use them at the range. Time is short people. Above all look after your neighbors show leadership. Once hedged try and enjoy life. While I am convinced there is more to this life there is enjoyment in evolving as a person, learning and smelling the roses once in awhile. God bless all of you of all stripes and nationalities.
LawsofPhysics - Correct, times began to be harder back in 2001. Rough from 2008 until now, the last acts even rougher economically although we should see some daylight in 2016, followed by 2 very hard years of debt restructuring and deflation in 2017/2018 and WW3 starting in 2018 based on my estimation, culminating in a nuclear exchange in 2021. I hope I am wrong but unfortunately my forecasting is prescient. I study cycles but not all things can be called on details. I hedge accordingly and so should readers.
You do that by going to the gym moderating habits now, some spirituality also useful which includes mental preps and being excited about mans future beyond such awful times. Get three months of beans, water purification and arms to defend yourself. Learn to use them at the range. Time is short people. Above all look after your neighbors show leadership. Once hedged try and enjoy life. While I am convinced there is more to this life there is enjoyment in evolving as a person, learning and smelling the roses once in awhile. God bless all of you of all stripes and nationalities.
4 week bills, lulz. frikken money market fodder.
Paper is starting to dry up. Not sure its all about the "debt Ceiling"
It's all been hypothicated and rehypothicated and bought up by the Fed.
The well's gone dry!
Methinks this is true. Deflation of money supply at the consumer level and those with the lion's share are not stupid enough to buy low interest, increasing risk bonds. BTW- how can there be a debt ceiling when there is no budget? The ceiling is a whimsical pretense.
If you think of the Federal Reserve, and the US Government like a clown car, and all of their idiotic schemes and policies as clowns piling out, it makes more sense.
Here are the facts:
When the Treasury issues $100 in TBill face value, the Federal Reserve prints $100 that gets added to the money supply. With the first coupon payment, the money supply gets reduced by the amount of the coupon payment. This leaves $100(-) in the money supply, but a debt of $100 on the government's books. Imagine the Fed's balance sheet. On the 'Asset' side of the balance sheet there will be a $100 Tbill. On the Liability side they will create a $100 Federal Reserve Note (FRN). The latter is a check drawing upon the former. On the government's Balance Sheet on the liablity side there will be a $100 TBill....and on the asset side there will be a $100FRN.
Got that?
The debt can never be repaid, because the Dollar IS THE DEBT's FACE VALUE and vice versa.
HERE IS WHERE IT GETS INTERESTING:
Q: So what happens if the market marks bonds below par?
A: When that happens the money supply must shrink by an amount equal to the booked reduction in value. So what was formerly booked as a $100 FED liability becomes a $100(-) liability, and the $100Tbill asset becomes a $100(-) asset.
Q: "SO WHAT? THAT'S BASIC ACCOUNTING!" You may say.
A: This is a big deal because it is a defacto raise in interest rates. The coupon doesn't change when the bond revalues. If the coupon were $1 when the TBill was worth $100, then it still is $1 when that bond is worth $50...which, in this extreme example, is a 100% raise in interest!!!!
BUT WAIT! THERE'S MORE!!!
A: Now the government debt must expand FASTER to roll over that bond at maturity. So a 3 year bill with a 1% coupon would have spent (retired) $3 of the $100 dollars in interest payments, yes? Leaving $97 in existence with which to pay off the principal (which is why the debt cannot EVER BE REPAID...there is by definition not enough money to do it!!!). But if the value of the bond is reduced, and the money supply contracts by the amount of the reduction in value... then there will be LESS MONEY paying MORE INTEREST, resulting in FEWER DOLLARS LEFT at maturity MEANING MORE MUST BE FINANCED to roll over the bond.
So, sub-par Tbills = deflation and SIMULTANEOUSLY = Greater Government deficits.
BUT WAIT! THERE'S MORE!!!
Those 'genuine' Federal Reserve Notes are what is called 'base money'. Those are what gets multiplied in the fractional-reserve banking system via rehypothecation.
Specifically, at a 10% reserve they get multiplied a maximum of 14.3 times.
SO WHAT HAPPENS WHEN THE VALUE OF THE RESERVE GOES SUB PAR????
Well...I hope they didn't loan out to their reserve ratio!!!!
(And even if they didn't, the reduction in the money supply must be multiplied by the banking system's money multiplier.)
So... A 1% reduction in value from PAR means up to a 14% reduction in money supply...theoretically...until they write an even BIGGER debt to roll over the depreciating one. Then all that 'deflation' turns into 'inflation'.
Get it?
This is what a stupid monetary system looks like.
P.S. There's your business cycle.
Don't overthink this. The FACT is that in the current monetary system where "money" creation no longer requires real collateral, bankers and financiers are in fact nothing but useless overcompensated paper-pushers between the printer/computer (where money is created from nothing with no work) and the producer/consumer in the real economy.
Time to execute the middlemen. nothing changes otherwise.
I think the bumps, hills and valleys in the Federal Reserve monetary design are meaningfull.
If your lifestyle is tied to the dollar, then I think you should care too.
Because, I believe, you can predict when defaults will happen, and their rough order of magnitude, when you understand the fundamental dynamics of the monetary base. Though it is not highly possible to say where the defaults will happen, or to predict the timing beyond, say, the quarter of the year.
So...
If the value of the TBills are dropping...then look for paper drying up.
It is in fact a global economy with everyone using fiat currencies.
ALL FIAT will die, period.
Get your tribe in order, this time it will in fact be global Weimar.
The folks we send to MARS might escape some of this, but no one else.
I am aware of that. Specifically the process of rolling over debt to create new currency results in an exponential increase in accumulated interest but an only algebraic increase in currency...leading to debt becoming unservicable with available money supply.
What tribe are you talking about?
Whether it is global weimar or global deflation remains to be seen. I on balance agree with you, because I believe those who control the banking system prefer it.
However, as I've examined the nature of the monetary system in detail it has become clear that the difference is one of timing, because the monetary transmission mechanism is not instantaneous. Meaning they could try for weimar, but if too late, get caught in a situation where the debt backing the money supply loses value before the money can get out there.
The producers of real products that require real resources and labor do not see any decrease in the cost or amount of real work that goes into delivering their products, period.
BOTH of your scenarios are irrelevant as the velocity of a dead currency is in fact zero. Remind us, what has the velocity of the dollar been doing?
And that's exactly why they hate Gold.
Well, the Fed did say that "rates were going up"...
for you, not bankers or financiers....
roll the motherfucking guillotines already, nothing changes otherwise.
Ho Lee Fuk told me in secret, that he is unloading this shit!
Do you get a T-Bill in your (mis)fortune cookie?
https://www.youtube.com/watch?v=K1fVQGESUTo
Boehner is still around, is he not?
There is no fucking debt ceiling.
Quit fucking repeating the propaganda and lies of the State.
The next mother fucker that uses this term is going to get my six-inch stiletto heal ground into their eye socket and their penis jumper cabled to my 12V battery, while I piss on them.
That might just be standard internet content in Germany
Pissing on someone that is part of a 12v DC electrical circuit could have unintended consequences. Same goes for electric fences (don't ask).
Much adieu about nada. 0.00 to 7bp. Is that an infinite increase or an undefined one? OUCH! May even get an extra dollar on the half mill I in the
money market this month! Wow! That'll cover the coke I just had at lunch.
A nice diversion from reality: https://www.youtube.com/watch?v=TzFxPEMXYIY
During the debt ceiling "crisis" in 2011, when S&P downgraded US debt, long-term rates fell almost 50 bps in the two weeks following the downgrade. So don't go do something foolish here and try to short long-term bonds over this...
interesting to see 1 month at 13 basis points and 3 month at 2 bps. ruh-roh!!
the problem isn't the 'debt ceiling', its the 'dod`s' slush fund, aka. 'black budget'... somewhere in the proximity of $20 TRILLION since 1983 to present of illiguid debt.
congressional oversite committees are well aware of this, as are our foreign counterparts, yet...[?]
we're fucked!
for those with short-term memory loss: remember the missing $2.3 TRILLION dollars SofD Rumsfeld spoke about the day before '911', on Sept. 10, 2001!?!