2s10s, 30 Year Yield Pancakes As Bernanke Sets Off On Bank Carry Trade Deathwish

Tyler Durden's picture

Congratulations Ben: you succeeded in getting the 30s to a near record low level (and by far the lowest for 2011) , which also means that the entire curve will soon be flat as a pancake, killing Net Interest Margin, aka curve carry for the banks, momentarily. Good bye Bank of America. Have fun riding that bear market rally with no financial leadership for the next several years.

30 Year

And 2s10s

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BrocilyBeef's picture

well done, and now for the tea party.

nope-1004's picture

I'm glad this FOMC distraction is over with.  Now we can get back to watching insolvent nations burn, insolvent banks squirm, and fractional reserve bullion banks blow up.

This entire ponzi is on the edge of a cliff.  OpTwist is just a side show.


BrocilyBeef's picture

it means no time like the present to buy physical. I bet we'll see silver under $39 before we see it over $43 again.

nope-1004's picture

I actually don't care if it hits $20..... I've got a 10 year horizon and I KNOW it will be $250 at some point in the future.  The tone and MO is set:  Banks are insolvent and governments broke.  What else does one need to know about where fiat is headed?

Whether it hits $39 or $37 in the next few months... pfffff.


DoChenRollingBearing's picture

Yep.  Green.


The long term future for gold and silver just got even better.  I'm with you, it makes little difference to me the short term fluctuations.  The metals have always been volatile.

But, all these manipulations make gold the BEST store of value around.  Whether it is $1785 or $1700 or $1650 (or even $1900) make no difference!  If you do not own any physical gold (or enough gold), then get busy.

DeadFred's picture

LOL perhaps this wasn't the best day to have puts on TLT. It won't hold at this level so time to double down. I wondered this morning why put prices were declining despite TLT dropping lower. 

Ira Thurby-Wright's picture

I'd think that having put contracts on long term treasuries would be a good thing...? Of course, I mean having written the puts, do you mean "holding" puts to buy? Then, that would be a bad thing.

"means that the entire curve will soon be flat as a pancake, killing Net Interest Margin, aka curve carry for the banks"

Regarding the Fed announcement, as much as it seems a product of much deliberation by the FOMC, I think it went more like a relaxing wine and cheese party and then Ben said, "well, this has been fun. My compliments to the St Louis Fed for making the catering arrangements and thanks to Philly for the table centerpieces. However, I think it's time I should go out there and announce what we all knew for a very long time would happen, that we are irreversibly stuck with low interest rates. If the banks can't borrow from us at sub 3%, they'll all crash. The banks have a bulk of loans out at sub 5% through RE loans at 30 years and the money they lent hasn't even been created yet, so if the treasuries competed for money the banks would otherwise hold as reserves, they'd crash within a year. Before I make the press release, can I have a few volunteers to dissent so that this doesn't look like a cabal?"

eburk's picture

Definitely, especially if you bought gold in 1980 at $2,500/oz in today's dollars.  What a store of value!

Au_Ag_CuPbCu's picture

$20?  Take it back to the 2008 lows so I can back up the truck.  What a gift that would be!

NeoCapitalist's picture

No need to bet, if you're so sure trade it..

covert's picture

where is the liberty and justice here?



Cocomaan's picture

Can someone explain what Tyler is talking about, here?

healey's picture

Ya, I don't understand the technical stuff either..i would like an depth explanation on the flattening of the curve and what it's effects will likely be.

dasein211's picture

Banks borrow on the short end of the curve and lend on the long end and pocket the difference. If the yields have minimal difference than banks cant make money on the spread.

SGS's picture

Easy.  BAC is fucked.

Cocomaan's picture

That explains it very well. Thank you.

Manthong's picture

Everybody to Chipolte..

Taco's on me!

Cocomaan's picture

Pass the Hopium and the hotsauce, please?

Dingleberry's picture

Banks will try and make money other ways. They ain't gonna make enough with rates like this for cars and homes.  Your gonna see fees increase, and they will not want to loan to marginal players because not losing money is the same as not making any (which they can't do, in this environment.) Credit will tighten, also because of Euro-shit.  Credit cards will continue to be essentail, if they can collect. I wouldn't want to work at a traditional bank these days. The Wall Street guys will just revert to trading and hedging, sprinkled with some HFT. You won't have to worry about them.  Sad...but true.

NotApplicable's picture

Professor Fekete does an excellent job of explaining how a falling interest rate environment destroys capital.


It is due to his writings that I expect the entire yield curve to be eventually flattened to zero (if the ruling cartel can last that long), as it is the only path forward for them. Otherwise, debt service costs always create an upper debt limit.

duckhook's picture

Thta could happen .It is called hyperinfaltion ,complete destruction of the dollar

DoChenRollingBearing's picture

@ NotA  Green

Yes, Professor Fekete wrote a brilliant series of articles on how lowering interest rates destroys capital.  I second his recommendation re reading Fekete, one of the best gold analysts as well.

Stoploss's picture

The Bernank just removed the ability for the banks to make money outside of lending.

nope-1004's picture

Which means they will be forced to start increasing rates or die.

"It was the banks that spurred inflation..... we only removed the support", says Ben in a year or two.

NotApplicable's picture

You forgot choice C: Nationalized Zombie.

Panafrican Funktron Robot's picture

My interpretation of this is that lending is officially even more fucked than it was prior to today.  If they weren't lending with the spread wider than it is now, why would they lend with a tighter spread?  

NotApplicable's picture


Banking for profit is dead, and is being replaced by banking for political gain (as politicians do not have to suffer the loss).

ShowMeTheTime's picture

Like DrivenZ says below, banks need a curve on the rates to make money, if the rates between the 2 year and the 30 year are the same or similar, they can't make money by borrowing short (low rates) and lending out long (hight rates, like a 30 year mortgage).  They just took away how 99% of banks make money.

aquagreen73s's picture

You mean they took away 99% of how the banks laundered their balace sheets to show a legitimate business operation. Now when the banks don't implode, the true extent of our centrally planned and controlled economy will no longer be the conjecture of conspiracy buffs.

Quintus's picture

Benny has just pissed in one of the TBTFs' main income streams.

Crack-up Boom's picture

He must've stayed at a Holiday Inn Express last night.

traditionalfunds's picture

Previously banks borrowed short term funds at a low rate and invested the funds in higher paying long term notes. The difference between the higher long rates and lower short rates was profitable. Easy money for them in a sense. Now that opportunity is drying up. Gonna actually have to deliver results through lending activity and other business ops. We all know how those operations are doing.

NotApplicable's picture

Every single time I go into my credit union, it's a non-stop sales pitch for car loans. It must be the last profit center left.

Kayman's picture

5 year loans on a 3 year asset, if you're lucky.  Had a friend with a GM pickup- Chinese wheel bearings crapped out in 6 months-dealer said it was his fault. He said, of course it's my fault, I bought a GM !

deez nutz's picture

real friends don't let friends buy GM. 

DoChenRollingBearing's picture

Chinese wheel bearing on a GM pickup...  The depths to which we have descended...

Kayman!  I just wrote an article on bearing manufacturing at my blog.  Drop me a gmail at my name for the link.

papaswamp's picture

Pancake bitchez...and some whipped creamatorium.

Long-John-Silver's picture

I prefer my pancake batter cooked in a waffle iron so fruits and nuts can be flattened and cooked too. 

CitizenPete's picture

holy fkin shit!  this will not play well with pension funds... no no, not at all. 

flacon's picture

They have to find some way to kill the elderly....

sodbuster's picture

They already have- it's called ObamaCare.

carbonmutant's picture

130 down on the Dow.

Grand Vizier's picture

Oh my God!  It's armageddon!!!  Cats and Dogs getting along...  What is this world coming to???  Relax and put on your big boy pants!

papaswamp's picture

algos still in disbelief....otherwise it would be down 300-400

fuu's picture





Some nice price stability there.

fuu's picture

Nas already green.

aaaaand it's gone.

or not.