Dispersion Between Pre- and Post-"Default" Cash Management Bills Hits 11 bps

Tyler Durden's picture

Yesterday we reported of a dramatic dispersion between the just maturing July 28 Bills and the "post default" August 4th version of short-term funding. We also suggested that this is probably a spread that should be promptly collapsed as in the very unlikely event there is a default, the last thing on your counterparty's mind will be trying to collect the several MMs owed to him. Well, the July 28s matured today, and the spread appears to have evaporated. Not so fast. Those who so wish, can still put on the compression trade, although not using plain vanilla bonds, but CMBs instead. In fact, as of today, traders can capitalize on the Treasury's D-Day, with the spread between the August 2 and August 4 CMBs rising from 5 bps to 11 bps in 2 days. Now the reason why this trade, with lots of leverage would be ideal, is that, as mentioned above, if the US does default, Repo desks and Prime Brokers will have much muich bigger problems, and two, as we pointed out, it will imminently become "uncovered" that the Fed has a secret stash of cash, up to the amount of about half a trillion, which may easily carry the Treasury through the new year, in which case the spread will immediately collapse. Of course, we could be wrong, and everyone who plays the compression will blow up in an epic supernova that will make Boaz Weinsten's legendary basis trade annihilation seems like amateur hour.

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Ahmeexnal's picture

politicians will most likely have already hedged accordingly.

they will reap millions while the sheeple starve.

Pure Evil's picture



Why do I get the feeling this is Tyler's bread and butter.

rossi's picture

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rossi's picture

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zerohandle's picture

Any way to play this using ETFs?

caerus's picture

if you want to short 7-10s check out TBX

a_ext's picture

Uhh lol, these are used for like 7-10 days.

caerus's picture

uhh..lol..like totally...for sure...

RiverRoad's picture

 Aug. 15, 2011 marks the 40th anniversary of Tricky Dick's removal of gold backing the dollar.  And thanks for sicking China on us, too, while you were at it.  Hell of a guy.

caerus's picture

may he rest in piss

ok may he rest in peas...i guess you enjoy your government stealing your childrens money...gratz

Pure Evil's picture

That just goes to show ya how far back they've been planning this fiasco.

chump666's picture

yeah the fed will have to pump hard to send yields down on a default/not default, yeilds are still going up and USD is sell.  Stocks who knows, maybe flat trade.  but once LIBOR and CDS spreads from EZ start to widen again, which is around about now. For me it's short EZ indexes, short Asia.  August Sh$tstorm is about to hit.  Debt markets are going to BLOWUP

buzzsaw99's picture

This whole thing is staged in order to create trading opportunities for the squid.

natty's picture

Reports are coming out on several undrafted rookies being signed by the Seattle Seahawks. As reported earlier, the most significant is Jeron Johnson, whom many had a fourth round draft grade for until a hamstring injury smacked his draft stock. Also signed this was cornerback Jesse Hoffman out of Eastern Washington. If you follow High School sports avidly, you should know Hoffman holds virtually every state rushing record and finished with a combined 50 touchdowns on offense and 5 interceptions on defense during his senior season. He is small for a Carroll cornerback, and may be converted to safety. Jesse Hoffman will wear Custom NFL Jerseys and play for Seattle Seahawks next season. You can log on our Yahbooks Online Minnesota Vikings Jerseys and select our best quality Vikings Jerseys but Steelers Jerseys if you are true fans of Seattle Seahawks.

ml8ml8's picture

WTF is that all about?  Are those guys going to be pledged as collateral like Cristian Ronaldo?  If not, take that bullshit to the ESPN website.

qing's picture

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