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Here Is The Chart That Explains Why Rates Are Rising In The US

Tyler Durden's picture




 

The easy answer is - well, its those dumb money 'safe' investors finally rotating from bonds to stocks; but what about fund flows provides any evidence for that reality. Alternatively, we suggest, the recent (and somewhat market-unexpected) pop in macro data (surprising to the upside) has seemingly provided a Goldilocks for equities (growth is rising and even if it drops back, Bernanke's got our back) and the inverse for Treasuries (growth is rising and if that's the case then Bernanke's Bond Buying extravaganza is over - mark 'em down). What is stunning to us is the incredibly tight correlation since LTRO2 between macro data (trend and beats/misses) and 10Y Treasury yields. While correlation is not causation, discussion of the macro thesis is strong top-down and suggests more than one person believes this correlation. Our concern - what  dominant data is this macro strength based on - NFP/Claims beat? Retail Sales beat? (consider the controversy of the seasonal adjustments in both and what that would do to the macro data index.

Citi's ECO Surprise Index tracks not just overall direction of macro data but the tendency to beat or miss expectations (i.e. a falling and negative trend is macro negative and indicates it is deteriorating faster than economists believe; and vice versa)

 

So - simply put - if you believe that recent retail sales and jobs-related gains are sustainable or more accurately not the result of in-extremis seasonal adjustments, then continue to sell the Bond... if however, you are a little more skeptical and suspect some of that seasonal-affectation will unwind, then covering that short (or buying the bond) seems reasonable here (especially as economists mark up their macro expectations and provide greater divergences from unseasonally adjusted reality).

 

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Mon, 08/20/2012 - 11:51 | 2720661 superbroker1
superbroker1's picture

buy silver?

Mon, 08/20/2012 - 11:56 | 2720673 Xibalba
Xibalba's picture

one never 'buys' silver.  one mearly exchanges worthless fiat paper for real money.  

Mon, 08/20/2012 - 13:02 | 2720871 MachoMan
MachoMan's picture

I'm gonna tell the checkout clerk that the next time I get groceries...

Mon, 08/20/2012 - 13:23 | 2720944 jcia
jcia's picture

Go to the cashier and ask her: "Do you accept dollars?"

Look at the deer face for the lulz.

Mon, 08/20/2012 - 12:01 | 2720674 LawsofPhysics
LawsofPhysics's picture

and gold, long any physical asset for that matter.

As to rising rates, common sense tells you there is a very real cost for creating capital, especially when nothing of real value is created as a result.  Thank you ZIRP (soon to be NIRP- all your 401k will pay down the debt, "winning").

Mon, 08/20/2012 - 13:03 | 2720874 MachoMan
MachoMan's picture

If nothing of real value is created, then I don't think it's capital that you're creating...

Mon, 08/20/2012 - 16:13 | 2721521 LawsofPhysics
LawsofPhysics's picture

Symantics.  Mark to fantasy, your point is valid since the capital is only good if the collateral behind it is good.  Has the word "collateral" been erased from economic and banking books yet.  After all this mark to fantasy accounting, it must have been.

Mon, 08/20/2012 - 12:13 | 2720718 AllThatGlitters
AllThatGlitters's picture

Should have *bought* silver.  

 

Look at it going vertical today on the live spot charts:

 

http://www.pmbull.com/silver-price/

 

Then again, it has a looooooong way to go if you expand that to a daily or weekly.

Mon, 08/20/2012 - 12:21 | 2720743 narapoiddyslexia
narapoiddyslexia's picture

One year ago tomorrow, silver closed at $43.84. The $ index was at 74.

Mon, 08/20/2012 - 12:33 | 2720778 fireangelmaverick
fireangelmaverick's picture

One year tomorrow, Silver closes at $17.00, USD index at 104.

Mon, 08/20/2012 - 12:47 | 2720819 tmosley
tmosley's picture

Because everything will be fixed by then, right!?

Mon, 08/20/2012 - 13:02 | 2720870 lemonobrien
lemonobrien's picture

No, cause the shit will be hitt'n fan; and the tards' in mass will be moving into the dollar.

Mon, 08/20/2012 - 14:28 | 2721188 Xibalba
Xibalba's picture

'cept for the fact that shit will be hitt'n fans because dollars are tp.  

Mon, 08/20/2012 - 12:29 | 2720769 redd_green
redd_green's picture

"I bought cardboard at 13 cents a ton.   Its up to 16 cents now, and I bought three tons of it.    And I got a special deal where I only have to keep two tons at my house..."

Mon, 08/20/2012 - 17:49 | 2721841 JeffB
JeffB's picture

Hmmm, I guess a decent sump pump would eat up all of your profits, eh?

 

Mon, 08/20/2012 - 11:57 | 2720669 Dr. Engali
Dr. Engali's picture

The ten year's recent rise in yield is just a small blip up in the longer term trend down to sub one percent.

Mon, 08/20/2012 - 12:20 | 2720741 Dubaibanker
Dubaibanker's picture

I concur.

Retails sales rose every year since 2000 except mid 2008 to late 2009 period. Nominal valuations currently exceed 2008 dip but real values are still lower. Volume has always risen, partly thanks to population growth.

http://www.lek.com/sites/default/files/L.E.K._CSS_Consumer_Spending_to_R...

While the 10 year yield, for example was at 6% in 2000, 4% in 2005, 3% in 2010 and below 2% in 2012.

http://www.tradingeconomics.com/united-states/government-bond-yield

Risk spread is another factor whereby the Singapores of the world continue to reduce their credit spreads and thus gain in bond prices more than their AAA peers in other countries. China sovereign owned corporate bonds, though rated, AA, also have reduced credit/risk spreads, than, say, 3 years ago. Investors are willing to place money with them, at lower spreads which must be worth something. 

The correlation between US Retail Sales and US 10 year is diverging for US corporates, where risk spreads are rising and not allowing bond prices to rise, whereas in other countries or global corporates, risk spreads have reduced, and in some cases more significantly. Regardless of where, US 10 year or other yields go, if credit spreads decline for 'stronger' countries or corporates, their bond prices shall continue to rise.

Mon, 08/20/2012 - 11:56 | 2720672 ejmoosa
ejmoosa's picture

"So - simply put - if you believe that recent retail sales and jobs-related gains are sustainable"

 

Sustainable?  They are not even real.

Mon, 08/20/2012 - 19:29 | 2722073 CheapBastard
CheapBastard's picture

<<what  dominant data is this macro strength based on>>

 

I don't know if I pushed retail up that much....I did buy 2 T-shirts the other day. Think that did it? It was an awefully Bullish move on my part.

Mon, 08/20/2012 - 12:04 | 2720690 bank guy in Brussels
bank guy in Brussels's picture

Some years ago, Jim Sinclair said that in the several stages of the US debacle, the really final milepost was the top (i.e., low yield) in the long bond ...

The opposite extreme of 1981, when the 30-year hit 15.25% ... and the 10-year was 10.84%!

At the time in 1981 many people were scared to buy the things but that was obviously the great bond buy.

Sinclair was speaking of the really long bond, but the 10-year maybe works close to as well ...

Looking at the yields climbing back up, it makes me think it would be quite something if the top ... this top of nearly a quarter millenium of US debt history, that we may never again see in our lifetimes ... if the top has already come and gone!

Mon, 08/20/2012 - 12:21 | 2720745 Dr. Engali
Dr. Engali's picture

The tops not in yet. The top will be in when everybody is in. I suspect one more big deflationary shock will send the ten year to sub one percent and the will blow off top will come when all the baby boomers are in and there is nobody left to buy but the fed.

Mon, 08/20/2012 - 14:03 | 2721102 MachoMan
MachoMan's picture

Yes, except this will play out (has played out) over a period much longer than most anticipate...  I see no reason for it not to continually grind/stair step lower...  at that point, any marginal rise in rates would stop the treasury in its tracks...  (we're almost to the point where any rise in rates will cause a default, if not already there).  Once containment is lost, there is no upside cap to where rates may settle...  we have no way of knowing.  But, practically speaking, I can't fathom it would get any purchasers even at 10, 20, 40% but for bottom feeders/degenerate gamblers...  reserve currency status would be lost...

Mon, 08/20/2012 - 12:07 | 2720695 Hype Alert
Hype Alert's picture

But if rates rise and we've issued all that debt, now held by the central bank, the interest payments will wipe us out.  Interesting that the banks created this problem, the banks banker (central bank) bought up all the debt and now we owe the central bank more interest and principle than we can pay.  Sounds like a great plan to me.

Mon, 08/20/2012 - 12:08 | 2720699 dolph9
dolph9's picture

Please everybody, realize something:  Treasury rates cannot rise again, ever.  They will go to 0.0000001%.

That's the way our system is designed, and that's why it will result ultimately in a currency collapse. 

Mon, 08/20/2012 - 12:13 | 2720719 LawsofPhysics
LawsofPhysics's picture

Correct.  Even better, make rates negative (as we are seeing in German and Swiss bonds) and pay off the debt with everyone's savings just before the currency collapse.  Wining!

Mon, 08/20/2012 - 12:27 | 2720761 tradewithdave
tradewithdave's picture

Why I do believe that is the Chicago Plan Revisited.  May a jubilee debit card arrive in every mailbox. 

www.tradewithdave.com

Mon, 08/20/2012 - 13:00 | 2720862 Hype Alert
Hype Alert's picture

Exactly, the interest payments will finally expose the obvious.  So the FED has crossed the event horizon.

Mon, 08/20/2012 - 12:11 | 2720704 vast-dom
vast-dom's picture

"So - simply put - if you believe that recent retail sales and jobs-related gains are sustainable or more accurately not the result of in-extremis seasonal adjustments, then continue to sell the Bond." See here again Tyler we must be careful with our cause effect tautology positing: retail sales and jobs data are in the dump and have been yet those yields, oh those yields...no amount of logic works in centrally planned ponzi-land, until there is a crash.

Mon, 08/20/2012 - 12:21 | 2720740 DavidC
DavidC's picture

"...dumb money 'safe' investors finally rotating from bonds to stocks".

Well, if they're buying stocks at these levels they need their heads examining anyway.

DavidC

Mon, 08/20/2012 - 12:24 | 2720754 vast-dom
vast-dom's picture

more like any money in any market other than PM and commodities is dumb, unless you are shorting the planet (on principle).

Mon, 08/20/2012 - 12:29 | 2720767 DavidC
DavidC's picture

Quite.

DavidC

Mon, 08/20/2012 - 13:56 | 2721076 old naughty
old naughty's picture

Short the planet... Is that why we sent the  MarsRover over?

Mon, 08/20/2012 - 12:23 | 2720753 MFLTucson
MFLTucson's picture

They are rotating to stocks?  Why is the volume at an all time low??  

Mon, 08/20/2012 - 12:29 | 2720765 DavidC
DavidC's picture

It's a ruse! Don't trust them!

DavidC

Mon, 08/20/2012 - 12:37 | 2720792 LMAOLORI
LMAOLORI's picture

 

 

"DavidC It's a ruse! Don't trust them!"

Indeed

NYSE trading volume declined again last week and was down over 10%. 

Mon, 08/20/2012 - 12:43 | 2720803 DavidC
DavidC's picture

LMAOLORI,
Indeed as well. :-)

It makes me laugh (ruefully) when I read of the Exchanges worrying and not understanding why the retail money is being withdrawn and why the trading volumes continue to fall, and yet they keep pandering to the HFTs and algos. Hmm, I wonder if they're connected in some way?

DavidC

Mon, 08/20/2012 - 12:36 | 2720788 spastic_colon
spastic_colon's picture

rotating to stock (singular) = AAPL

rotating to stocks (plural) = AAPL and BAC

Saviors to the ES

Mon, 08/20/2012 - 12:41 | 2720798 NEOSERF
NEOSERF's picture

We are only where we are in the markets right now due to the concurrent ramp STATEMENTs by Hillsenrath and Draghi for more free money which rocketed this up 600pts in 3 days...now any lack of follow through should have sent this right back down but this is not how the game is played anymore...

Mon, 08/20/2012 - 12:45 | 2720809 youngman
youngman's picture

I would not be buying bonds at any rate....its gold and silver for me....just the way the EU is playing out...the politicians are lying with their profound statements...just a joke....and Spain wants no limits...lol...no limits....thats Weinmar right there...and Cat just came out with some forward looking bad news...mr Cat was always talking up emerging markets..now they are dead...in Colombia here..we are slowing down fast...the world will turn to the final safe haven...gold and silver boys and girls..

Mon, 08/20/2012 - 12:48 | 2720820 bagehot99
bagehot99's picture

Winning today, Financials, Airlines, Defense.

And Apple. And Facebook (wtf, who is buying this MySpace repeat??).

This market makes no fucking sense at all. Buy silver.

Mon, 08/20/2012 - 19:36 | 2722089 Willy22
Willy22's picture

Tyler Durden is simply talking its inflationary book. I have a different view on this supposed inflationary force.

1. (Hyper-)Inflation is the situation where money DECREASES in value against a number of assets. Stocks, bonds, real estate but also commodities. But a rising bond price equals falling interest rates. So, the 30 year bull market in T-bonds is actually INFLATIONARY.

2. Deflation is the situation where money INCREASES in value against a number of assets. Stocks, bonds, real estate. And falling bond prices equals rising interest rates. So, this is another DEFLATIONARY force. But that's something Tyler Durden doesn't like, right ? He's still on the inflation path.

On top of that, foreigners have stopped adding to their T-bond holdings. Rising interest rates, anyone ?

Watch this as well.

http://www.distressedvolatility.com/2012/06/robert-prechter-makes-huge-call-on.html

Do NOT follow this link or you will be banned from the site!