With 5 Year Trading -220 bps Special In Repo, 5 Year Drops Sub-1% Following Record Auction

Tyler Durden's picture

Those who follow the repo market are well aware that something is quite odd with the 5 Year point on the repo curve. While most other bonds trade normal, the 5 Year OTR trades special. And not just special: really special (see chart below) at -225 bps, a number which has soared in the past 4 days, when it was just 0.00% on September 22. And while we will not discuss what is happening in the repo market in this post (judging by this fact, nothing good), it did help with today's brand spanking new record low yield 5 Year bond auction, which courtesy of the repo skew and certainly courtesy of Operation Twist, just priced at an all time low 1.015%, well inside of the 1.03% When Issued, and printed at a 3.04 Bid To Cover, substantially above the recent average 2.76, not to mention a surge in Indirect Bidding to the tune of 46%, well above the average. So even though the 5 Year auction was a stunning success, sending the 5 Year to under 1%, what it telegraphs is that there is something very messed up in shadow banking, where both money markets and repo are getting gutted courtesy of Europe. We expect ongoing such risk transfer from shadow into sovereign debt: a development which as we discussed previously is very bad.

Chart: Stone McCarthy

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sqz's picture

Probably some end-of-quarter debt hedge unwind. Perhaps vs CDS, swaps and corps where 5-yr and 10-yr points are common.

Nothing to see really. Need this kind of blow-out reflected closer to the short end to be interesting, especially since that's where the Fed is supposedly targetting.

redpill's picture

PMs just took another dump.  Anyone know why?

Going Loco's picture

Liquidity. Credit Crunch re-run. Complete and totally devastating worldwide shortage of cash.

Me, I don't even hold bonds any more. I have gone for the ultimate in short-term paper: banknotes in safe deposit boxes.

Thank goodnes I saw this coming (thanks Tylers, I mean THANK YOU Tylers). Donation coming.

Byte Me's picture

Second that.

Cash in a deposit box. But shortly to be withdrawn for safer domestic redoubts prior to any 'Bank Holiday' nonsense.

Boston's picture

Platinum $100 below gold.  I just bought platinum.

SheepDog-One's picture

LOL every FED bond targeted action has been a total fail.

Pegasus Muse's picture

Brought a tear SD.  Good song.

Village Smithy's picture

Isn't this the opposite of what happened this morning with the German 5 year ? 

disabledvet's picture

Yes. And is there a difference between "very bad" and "other"?

GeneMarchbanks's picture

Are you suggesting correlation? Short bunds long bonds, eh?

SheepDog-One's picture

People with 'smart money' now rushing to park it at guaranteed negative return? This is about to get real shitty. No one with BIG money would be doing this if they knew some bailout was right around the corner, and they all do know whats coming. 

Can I please park $1 billion with you if your guarantee me back $990 million in a few years? Sick.

LawsofPhysics's picture

Hey SD, in a hyperdeflationary world this is still better than "Hey can I give you a billion now to collect a few thousand in a few years - sicker.

gojam's picture

Nevermind, everything will look completely different in 5 year's time. You'll see. ;-)

SheepDog-One's picture

No doubt in 5 years everything will look very different. Ever seen the movie 'The Road'? Or 'The Road Warrior'?

Village Smithy's picture

As Shakespeare said " first, we eat all the bankers".

fuu's picture

Then we kill all the lawyers?

So hard to work on a full stomach though. We should do the lawyers first then snack on the bankers.

gojam's picture

We'll all be driving hover cars.

Smiddywesson's picture

Pulling carts.  We will have eaten the horses.

Who say's there won't be jobs?  Start your own business:  "Bring out yer dead!"

FlyPaper's picture

Obama will be a dictator?

InconvenientCounterParty's picture

Nobody covers shadow banking like ZH.


potatomafia's picture


We expect ongoing such risk transfer from shadow into sovereign debt: a development which as we discussed previously is very bad.

Its not "very bad", instead it is just "less good".

centerline's picture

Money starting to run scared. Not a good sign at all. Doesn't seem like an avalanche so far. But could be the beginning of a larger move.

Dapper Dan's picture

Run where? pray tell

is it lean hogs?


Finally, I'll leave you with a quote from Dr. Ricky Rood's climate change blog, in his recent post,Changing the Conversation: Extreme Weather and Climate: "Given that greenhouse gases are well known to hold energy close to the Earth, those who deny a human-caused impact on weather need to pose a viable mechanism of how the Earth can hold in more energy and the weather not be changed. Think about it."

Larry Darrell's picture

In response to your "climate change" quote.

Who gives a fuck?

Not me.

They told us we needed to close the hole in the ozone -- legislation as the solution ahahhaha.  Well, now the southern ice caps are melting multiple times faster than they were, because all the solar energy that reflected off the ice and snow harmlessly back into space is now trapped.  So they bitch about global warming, and then pass certain legislation which speeds up the process.


But there is zero controlling of the planet's atmosphere, and anyone attempting to do so is a COMPLETE FUCKING IDIOT

I'm not saying we go out of our way to trash the planet, but some people's meddling is counterproductive.

Hugh_Jorgan's picture

The climate changes, it always has it always will. You are either a sucker or a shill. Either way, go spew your "end justifies the means" sycophantic, eco-drivel someplace else.

kaiserhoff's picture

He who panics first...

RobotTrader's picture

More proof that "Paper" reigns supreme over "Hard Assets"

potatomafia's picture

or are we reaching the final blowoff of one of the greatest bubbles?

fdisk's picture

You mean what? GOLD or Silver?

LawsofPhysics's picture

But the whole point here is that someone is buying, not selling.  right?  So this is the peak before the drop then.  Sort of like; "look, your bond investments are doing real well and ... its gone..."


Is this what you are saying?

Going Loco's picture

I don't know whether you are paid to say what you say or whether you are just stupid but if you are going to make a remark like 'More proof that "Paper" reigns supreme over "Hard Assets"' you simply must qualify it by the additional statement 'for now, and for a brief interval hence' or somesuch. We are now inside Jonathan Ruffer's "moment of deflationary fear" and when we have experienced this phase his "inflation of currency compromise" will make PMs the safe haven. Anyone reading you would think you were saying that paper presently reigns supreme over hard assets and will always do so, which is addled claptrap. I have sold my gold and have placed banknotes in safe deposit boxes but this is just a trade, the time is coming when a switch back will be needed. Nobody would ever detect that vital piece of good advice from your asinine dictum.


Sudden Debt's picture



today was forecast and budget meeting with sales.

We have a very optimistic owner who wants 30% growth next year.

there where 14 sales managers in the room and at one point I though they where starting a lynch mob.

they all realized that we're heading into a mayor crisis and as our sales depends for 40% of their salary on bonusses on sales, they just knew they are heading for a very louzy year next year.

We came out, and every SM told me this: We're going to advice all our reps to look for other jobs as fast as possible. And they where going to do the same.

A real moral booster. Next year will be christmass every day......


kaiserhoff's picture

But SD, you said just the other day you'd be happy selling hot dogs in the street.  Anyway, everyone is rich in Belgium thanks to the Euro..., oh wait.

wang's picture

whining sandbaggers


brodskan's picture

By Stone Mountain, do you mean Stone & McCarthy Research Associates?

Vergeltung's picture

this is the lind of post I need a little more "common man" language to understand it. steep learning curve with this stuff.  :)


pauhana's picture

"By the pricking of my thumbs, something wicked this way comes."  Second witch, Macbeth, Act 4, Scene 1.

fdisk's picture

Freeport-McMoRan Copper & Gold Inc. (FCX)

Got 3% yield now.

rajc's picture

does this mean mortgagae rates will go lower?

sorry i am confused as bloomberg said no it won t go lower but fed said it will.....?????!!!!!

RobotTrader's picture

Nucor and Conoco Phillips now paying over 4% yield, with huge, long dividend track records, but nobody wants them, they would rather lap up more U.S. Treasuries paying nothing.

Lucius Cornelius Sulla's picture

Good idea, but if you wait I'll bet you can get over 6%!  I'm waiting for XOM to yield 5%.  

delivered's picture

RT. Generally don't reply to most posts but I would have to agree with your statements. I've been in CP for years given the solid yield, strong PE, and to use somewhat as a commodity hedge (with oil). Also, I always felt CP would be a good acquisition target for a global player. Duke (DUK) is also in this boat on the yield front (with a 5% yield). Share the same sentiment in relation to how one can buy 5 yr USTs yielding 1% and continue to not only support but basically encourage Washington to keep spending (as if someone offers me 1% money, if would be hard to turn down).

One thing to remember is that the healthiest companies with the strongest balance sheets and earnings may become even more aggressive with stock buybacks as if alternative investments (for their use of cash) are not present, the best choice may be to repurchase shares (which Mr. Buffett just did). With record levels of cash sitting in large corporations around the globe, and assuming the "tax implications" can be managed associated with this cash, I'm wondering if either directly or indirectly (i.e., nudged/pushed by TPTB), that this cash may be put into play in some fashion. Just a thought but with the financial industry/institutions a mess (and needing to recapitalize with fresh cash to cover losses everyone knows are coming), the capital flow the global economy is so dependent on may have to actually come from non financials (via stock buybacks, acquisitions, capital investments, increased dividends, etc.). Let's face it, TPTB are not going to be able to keep their hands off this cash too much longer.

Lucius Cornelius Sulla's picture

Market is clearly signaling deflation.  CPI will go negative by January (if not sooner).