The Real 'Bifurcated' Flight To Safety

Tyler Durden's picture

In the last four days much has been made of Swiss and German short-dated bonds moving negative as investors seek the preservationist path of least resistance but perhaps even more critically, the real flight to safety globally has been from Europe to the US. The spread between 10Y US Treasuries and 10Y German Bunds has collapsed the most in over 3 months in the last few days as the world and their pet rabbit jump to front-run Bernanke and seek the safety of the most print-worthy currency in the world. Notably though, 2Y Treasuries are at their cheapest (widest spread relative) to German 2Y since Q3 2007! It appears domestic European capital is flooding into short-dated Bunds and any foreign money is being repatriated back to longer-dated US Treasuries.

10Y Treasuries bid over 10Y Bunds

with the biggest 4-day compression in over 3 months...

 

 

But 2Y Treasuries are near their wides relative to German 2Y...

as domestic European cash runs to Germany and everything else floods back to US Treasuries...

Charts: Bloomberg

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MillionDollarBonus_'s picture

US Treasuries are the most reliable safe-haven asset, boasting a 30 year track record. It seems like every day now that the ten year makes a new all time low, much to the astonishment of goldbugs, silverbugs and doomer libertarians. In addition to this stellar track record, US Treasuries are also rated as a tier one safe haven asset, making them a number one choice for banks looking to sure-up their financial statements.

casey13's picture

Just the dumb money getting in before the big turn. They buy every bubble just before it goes pop.

firstdivision's picture

Watch what happens when people realize the US is broke and will not honor its obligations to long dated bonds.

CynicLaureate's picture

The US will always pay its bonds...but if they print the money to do it, inflation makes it worth less.

The buyers are betting that the US will have less inflation than wherever they're fleeing.  That might actually be a good bet for some people.

fijisailor's picture

30 year track record.  Wow thats impressive compared to PMs with thousands of years of track record.

deez nutz's picture

US Treasuries:

the next bubble, so obvious a caveman could see it.

Al Huxley's picture

Exactly. And it's just getting started. By the time it's in full swing retailers will be buying at -5% planning to sell at -5.5%.  The only fly in the ointment I can see that will have to be resolved to convert the retail trade from fear-driven 'anything is better than stocks' to a 'I'm gonna be rich' speculative frenzy is the need for some fairly serious leverage to generate any major greed-inducing profit potential.

deez nutz's picture

some fairly serious leverage to generate any major greed-inducing profit potential.

agreed.  And that would be called the "reflation bubble".  What happens when that one pops?

let me see if my timeline is correct:  dot.com bubble, housing/credit bubble, Gubmint-bubble(now), stock/reflation bubble(coming)........ then UST bubble?   after that????

MeelionDollerBogus's picture

Thanks to rehypothecation of UST for margin accounts they are way up, along with operation twist > 6 years.
HOWEVER, with BIS treating gold as a tier I asset you can kiss UST safe-haven status goodbye forever.

UST are a loss over 6% vs inflation

gold is a gain over 15% vs inflation

it is gold that is the safe-haven.

http://flic.kr/p/cutWa7

mrktwtch2's picture

just buy any bond dip..it has worked great for the last 18 months..no sell off lasted more thatn 3 days..

JPM Hater001's picture

Brains...need more brains

apberusdisvet's picture

What prick will burst the bubble?  Bernanke, Obama, or Geithner?  Or will it be one of Krugman's aliens?

malikai's picture

Who says it has to be just one prick?

Dr. Engali's picture

Bond bubbles everywhere. I'm pretty sure that this is going to be painful when it unwinds.

zero19451945's picture

Off the Titanic and onto the Lusitania...

centerline's picture

If the EU mess ends with a whimper, there might be time to react.  If it ends with a bang... good luck getting to the exits.

RobotTrader's picture

Believe it or not, Bernanke will have to launch some form of QE just to stop a runaway bond market.

 

Hands down, these are the most insane charts I've ever seen:

http://www.wallstreetbear.com/board/view.php?topic=103835&post=378042

centerline's picture

Those charts would have me nervous for sure.

fuu's picture

...parabolic...blow off top...bubble...

LawsofPhysics's picture

Debt will be paying for itself, "winning".

I am sure this will end well...

youngman's picture

Its probably not very good if the whole world is "flighting" to safety...hmmmmmm...does not sound like a good investment market to me...Greek Bonds..not any more....Spain and Italian Bonds.....not any more....Brazil.....not any more...hmmmm..flight to safety....while the pension guys are "flighting"  to yield...they need 7% plus.....oh boy..this is going to end well......

centerline's picture

Amazing how long the game can be played.  Sooner or later though, there won't be any place to hide - or mask the effects of creating synthetic yield.

falak pema's picture

there is a lot of pension fund money; money market and mutual fund money and private equity money sloshing around desperately. Not enuff safe havens, so much liquidity which does not want to go to risky sovereings and manipulated stocks. 

graneros's picture

Once TPTB have "borrowed"  and burned through those funds (for the true owners safety of course) they will come for your "physical."

RobotTrader's picture

The bond rally is creating total havoc at the commercial banks.

 

We are seeing our customers demand that we lower interest rates on commercial mortgages on loans we made on apartment buildings just 6 months ago.

They are threatening to move the loan elsewhere.

As a result, the banks are all furiously granting interest rate reductions just to control the loan runoff.

zero19451945's picture

Please don't pretend like you work for a bank.

Anyone following your trading calls has blown themselves up several times over.

LULZBank's picture

 

Anyone following your trading calls has blown themselves up several times over.

That actually proves he works for a bank.

Debtonation's picture

I'm just waiting until the US starts issuing bonds with a negative coupon.  I can see it now "Washington to bailout Wall Street banks for defaulting on coupon payments for bonds loaned to itself."

booboo's picture

Ha!' Ben, keep turning those knobs, flicking them switches and tapping on those breakers, I mean it has to work right? It says so right there in the book.

Kit Green's picture

There is no safety in a system that will collapse.
Outside the system is another matter. 

falak pema's picture

So whats happening to gold today?

Its on the move up. Stocks down bonds up.

Robotrader must be sweating hard! 

Haager's picture

I'm kinda sure that paper gold will decline soon. And definitely if someone does follow M. Keisers call to go short on AAPL for about 10bn.

MeelionDollerBogus's picture

shorting AAPL is too dangerous, with or without margin - http://flic.kr/p/bkbg9B - the options are pricing in no less than $10/month change and decay is so rapid in theta that if you buy a put or a call you'll probably lose within 30 days so much capital you'll scream.

Short Facebook if you like but don't dare short AAPL.

I HATE apple and their products are garbage. GARBAGE.

But I can read a chart and make a smart play or avoid a dumb one.

hedgeisforpussies's picture

if i short 2year bunds and have enough money to withstand any MTM squeeze do I have a guaranteed profit? i understand that there is a risk that germany may impose short selling ban like spain and italy but aside from this are there any economic risks as to why i may not get a guaranteed profit. i also understand that if germany goes back to Dmark I will have a loss on currency due to Dmark appreciation. but aside from that what do I have to lose from shorting two year bonds with negative yield? 

Haager's picture

Just a question: You're not holding the bond, just some paper - albeit electronically - about a short on that bond. If the system collapses or your bank breaks or whatever else may happen, what do you think will your paper be worth?

It's way more safe to have something physical, something you really own. Everything else could be erased within a wimp.

If you try to do a good deal nowadays you need to consider a heavily rigged market where your chances are at best 50:50. It's a casino, nothing more but nothing less.

MeelionDollerBogus's picture

Actually a heavily rigged market allows for outsized gains. Just use shorts and longs at the peaks as indicated by the rigging pattern which is definitely not random.
e.g.
http://flic.kr/p/cgMBw3 and http://flic.kr/p/b3iBqa

Snakeeyes's picture

Well, if GDP sucks on Friday and given the housing numbers today, there will be pressure to do more intervention even though it won't work!

The Central Banks are out of ammo!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!111

http://confoundedinterest.wordpress.com/2012/07/25/here-come-the-fed-home-sales-drop-more-than-expected-mortgage-purchase-applications-drop-too/