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WTF Chart Of The Day: Debt-Ceiling-Driven Panic-Selling In T-Bills Sparks Buying Frenzy In Stocks
With less than 2 weeks left until the "debt ceiling accident" that Jack lew has warned about, T-Bills (maturing beyond Nov 3rd) are being dumped wholesale. Oct 29th Bills are trading -1bps but Nov 12th Bills are up 6bps at 12bps, the 1-month WI is at 16bps. Of course, equity markets will be the last to notice and algos appear to be seeing this as a panic-buying-opportunity.
hhmm...
Charts: Bloomberg
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More debt = great news
Just awesome.
Why not? Makes perfect sense in a world that lacks sense.
Fed continues 0%/negative rates and QE until the US dollar keeps free-falling. Market eventually takes control again.
Everyday I wake up and just say WTF
I just keep pretending that it's all a dream. Then I'm off to the liquor cabinet.
Absolutely absurd....never seen anything like this...what an enormous farce this all is...tricking naive public...wow. a huge pump and dump the entire global economy has truly become...
The ShitShow slouches ever onward.
Yo Bro:
Cash on the side li(n)es
16 bps? fuck i'll buy them
that's the point, right? he's marking down his inventory. he can't hike but he can talk up yields. Lew's first job is to sell this stuff and he's got little to work with. And what he has he doesn't even use. Because he wasn't a salesman at CITI, or at NYU for that matter. The invisible man, before he got the top sales job.
What makes them think that they can hide between bonds (debts) and stocks (debts)??
Lloyd, Jamie, and the fed. boys just want to thank you for that action, Christmas is coming.
keep your blindfold on, cash in hand and enter the fed. casino, 'formally known as the American markets".
Federal Reserve buying algos see it as a buying opportunity, anyway. "Buyer of last resort" and all that.
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.
Political theater at it's finest, as long as you realize it is not drama, but farce.
The corporate shills masquarading as the people's representatives WILL raise the damn debt limit at the last minute, after extracting all the sound bites and perceived voter atta-boys they can get, but before any real damage is done.
Why? Their corporate masters/significant donors will tell them to, because it is bad for business. (And the MIC needs to keep those checks coming.)