Treasuries Got Bernanke'd: 3 Years Gone In 3 Weeks

Tyler Durden's picture

Via Alex Gloy of Lighthouse Investment Management,

US Bond market:

Over the last three weeks, 10-year US government bond yields increased from under 1.4% to 1.85%...


while 30-year went up from 2.44% to 2.96%...


To put things into perspective: Here are those movements on a longer time scale (together with 5-year yields, blue, and the 3-months yield, yellow):


And this is what this “minor” increase in yields does to long-term bonds:


The 20+ year Treasury bond ETF (TLT) declined 8.2% from the top. That's more than three years worth of interest, gone in just three weeks.

Yes, there is a flip side to central bankers artificially depressing bond yields. And you thought you were smart, not falling for Bernanke’s siren songs to push you into "risky" investments.

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Sudden Debt's picture

treasury bonds and interest.... those 2 just don't rime...

NotApplicable's picture

I like how the author tries to make his point by showing a longer term chart that totally invalidates his thesis.

Muppet Show, anyone?

flacon's picture

Bernanke: "We can raise interest rates within 15 minutes". 


From Forbes:


He stated, “We’ve been very, very clear that we will not allow inflation to rise above 2 percent. We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.” He failed to mention that the Fed doesn’t have the will to drain money from the system, without which all tools are useless.


LOL! Ben my man, you LOOSE because the Free Market got there before YOU DID! Asshole!

Debtonation's picture

Bernanke just has to "Twist" harder.  Maybe at Jackson Hole he'll announce he's accelerating Operation Twist's security portfolio reallocation.

Caviar Emptor's picture

Slowly people are losing faith in every paper asset out there. Especially when the risk/reward is nearly flat

laozi's picture

Slowly they lose faith, but when the fall comes in Treasuries, it will be like a lightning. 100 times Lehman.

dmger14's picture

...and that scares the hell out of me, though I am preparing.  The 10 year is up to 1.85% as I write this.  I wonder if we're seeing the beginning of the bond bubble bursting now, or if it's a brief respite before plunging to 1%, meaning the bubble burst is a year or more off yet.  At some point Bernanke is going to have to print, if only so there is a buyer for all that treasury paper. 

TwoShortPlanks's picture

You don't seriously think they'll print do ya?! They'll monetize Gold before they do another round of QE, unless of course China has not yet raked in enough Gold by the time another crisis hits (yes, I do understand the significance of that statement).

Yes, I did in fact say "monetize Gold" don't think they surveyed the Fed's Gold for no reason do ya?! That China's buying and producing something in the region of 1,600 Ton/pa because they like the colour yellow do ya?! That the BIS have been trickling out the merits of a Gold Standard in marginally endorsed low key white papers because the global economy is fine and they have nothing else to do than to look at Pie-In-The-Sky ideas, do ya?! That the spread between base money and bank assets isn't causing the system to freeze-up and that the powers-that-be aren't seriously looking at expanding base money in an M0 kind-a-way with a physical asset rather than the usual paper asset do ya?!.....Oh my! (Comments directed at everyone)

About 12-18mths ago I stated on ZH clearly and without any ambiguity whatsoever, that they will monetize Gold within 3-5 years. That it will initially support the Bond Markets and the resulting pressures of that move will force a cascade of woes in other sectors thereby forcing a Gold Standard across that which cannot be allowed to burn. If we (stackers) are lucky, this will include Bonds, Derivatives, Managed Funds and Base!...10oz will buy you a million dollar home in today's prices.

And who will lose-out if Gold is monetized, Bond holders? YES, initially, but this is the pressure which will force the standardization from specific (strategic actually), to a general monetization. It may take 10 years.

My prediction still stands and is looking better each day.

Again, monitor the tide, not the swell.

disabledvet's picture

"save my life I'm goin down for the last time!" Meatloaf money bitchez...

vast-dom's picture

made some good scratch on TBT.


this bond bubble is going to POP. Bill Gross called it, just a year too early!

resurger's picture

The muppets thought they were front running the FED!

vast-dom's picture

it'll be hard to front run a busted fiat with yields subverting ZIRP.


Bernankzi suck my ballsack you crony bitch whore!


And be patient the SP run up is the stress test on its bubble walls = POP!

Mr Lennon Hendrix's picture

You must be getting blown out going long the dollar.  Sucks to be you.

vast-dom's picture

i'm going on record that today the 3pm levitation will actually be the 3pm SELL OFF. why? cause my crystal ball says so. 

Mr Lennon Hendrix's picture

The trend is that if equity rises in the AM it gets sold at the end of trading.  If it gets sold in the morning, then it rises into the close. 

The algos game profit by taking it, or let stocks melt up on low vol.  Everyone knows that. 

Wash, rinse, repeat.

Flaming Ferrari's picture

Ah the fools. Playing right into his hands. You're just making the bonds cheaper for The Bernank to buy come September.

mac768's picture

just wait for the war mongers to start the rockets in the strait of hormuz and all will be reversed in minutes


Oh regional Indian's picture

I think people have just lost interest...

buzzsaw99's picture

And you thought you were smart, not falling for Bernanke’s siren songs to push you into "risky" investments.


LULZ Yeah, because we all went "all-in" at the tippy top. I guess all the goldbugs bought in at 1900 too. How superficial and insulting.

Squid Vicious's picture

lost another one to Ditech, muppetz

max2205's picture

When the SHTF you'll make that and more on the overnight open

worbsid's picture

I hate to tell you this but the day after the SHTF, you will have the same amount of gold you had the day before. Only if you can change that gold into something valuable to you, will you profit (??).  If it is a mega SHTF affair, I would rather have a well for water, a garden for food, and enough hardware to keep someone frome stealing it. If it is just a little SHTF affair, you will get lots of fiat money for your gold.

fonzannoon's picture

wait till after labor day. Those 10yr yields will be kissing 1.5% again. This is nothing. This is the few guys remaining at the desks making some change. When the yields finally pop it won't look like this.

laozi's picture

Dear sir, I think you have a point. US Treasuries is the last bastillion to fall, and when it does it will be all over in less than a week.

Being a goldbug myself, I still think Treasuries have years in them. They should go way lower before the insanity becomes apparent to the public, and the $ falls.

khakuda's picture

Get used to it.  With rates manipulated well below where they should be, volatility is the order of the day.  I could argue the 10 year should be at 7% more easily than I could at these levels.

Sadly, the Fed would love nothing more than an epic melt up rally in all risk assets to "fix" the economy.  Bernanke has written that higher stock prices are helpful, which implies he's making a valuation judgment.  What's high Ben?  15x PE, already have the latter in some stocks.  Rosengren would like a melt up sparked by the destruction of the dollar if he had his way.

Zimbabwe and Weimar Germany should be required reading to get a job at the FRB.

Mark my words, Bernanke is in the process of destroying his legacy as we speak.  When they write the book, they will applaud his courage at QE1 in 2008/2009 and then describe how he kept too much liquidity in for far too long causing all sorts of bubbles and other large problems.

walküre's picture

Rethink your statement.

The amount of money in the system = X.

That money or "wealth" is looking for yields. It wants to be "serviced".

Economies around the globe are not in a position to service the debt today, tomorrow or the next day.

7% on a 10-yr note is IMPOSSIBLE.

Why do you think European nations that were forced to lend at these levels are going BK?

DEBT = WEALTH / A debt cut is a cut in wealth. It needs to happen. There is no alternative.

Vincent Vega's picture

7% ten year is not impossible. Go back and look at where yields were in the late 70's and early to mid 80's. The first home mortgage I ever had was 10.5% and I thought I was getting a deal. Having said that, I would agree with you if you had said a 7% 10 year yield in not sustainable. Even then I would argue that it is sustainable so long as CB's agree to keep the ponzi going with unlimited credit and wage increases for everyone. But  even 5% borrowing cost for US Treasury are not raelistic with $16T to service...equates to about $800B annually.

fonzannoon's picture

7% ten year and we have the largest stock market crash in history followed by an inflationary holocaust.

Vincent Vega's picture

I completely agree. I'm just saying that it's not impossible. Which is why I buy PM's. Keep in mind that the Fed Funds rate was 5.5% as recently as 2001 and 5% as recently as 2006.

MachoMan's picture

You're making an argument from induction, i.e. without referencing the conditions that lead to the previous incident of high rates...  The OP stated that it would be impossible for sovereigns to service their debt if rates were that high because of the sheer amount of existing sovereign debt...  the fact that rates were high at any other time in history is irrelevant...

The question then is to what degree will the FED act to keep the monetary union (both that of the united states and entire world) alive?  I think the consensus is anything and everything, regardless of whether it is within the confines of its charter. 

Vincent Vega's picture

Again, I'm not trying to be argumentative. I'm merely pointing out that a 7% 10 year is possible. Historically the 10 yr US Treasury averages about 4.5%. Currently it is near historic lows and I was merely agreeing with the original poster. Factually, many countries can't service their debt at 2%...yea, I got it. Currently rates are being held artifically low and should/would be considerably higher without Fed intervention. just sayin'

Beam Me Up Scotty's picture

The only way rates rise to 7% is if inflation goes to 8 or 9% and we will still be running NIRP. That's what happened in the early 80's. Rates rose but not faster than inflation. Volker had to accelerate the rise in interest rates to break inflation. Bernanke won't be smart enough to do that because we will have to endure a pretty severe recession and possible depression to accomplish the same thing volker did. Sheeple won't stand for that this time. They will beg for QE well before S&P 666 this time.

Vincent Vega's picture

So you don't think Bernanke would raise rates if we had inflation similar to that of the 80's? OK, so who's going to buy a 1.85% 10 yr if inflation is running at say a mere 3%? If your answer is "the Fed" then you are correct. Of course we would then be looking at currency devaluation via printing (which is another way of saying inflation). The difference between the 80's and now is that individuals, banks, credit unions, pension funds, Savings & Loan Assoc., Insurance Co's, Japan, Russia, China,India, et al...were all buyer's of US T's. Also, the $ was stronger and the debt lower as a % of GDP.

You are correct that the sheeple will beg for QE and they will get it. But the Treasury bubble will eventually burst and when it does, the exit will be quite crowded.

ZackLo's picture

If the government balanced the budget and issued no more debt then the interest rates on outstanding debt wouldn't change, it's only Interest on future debt that changes. But, then we have to sort out that whole underfunding problem and liquidate an asston of trash collateral in the markets...Getting back to cash clearing transactions and not ponzi repo credit clearing will be hard indeed.

Vincent Vega's picture

On bonds the interest rate is fixed and never changes (talking about 10 yr Treasury). It is the price of the bond that changes and thereby raises/lowers the effective yield. The current US 10 yr has a fixed interest rate of 1 5/8 and that will not change through the life of the bond (maturity). So your statement that 'interest rates on outstanding debt wouldn't change' is technically correct. However, the price/yield can vary substantially. But if/when the Treasury comes back to market and issues more bonds; they will have to pay the prevailing rate for the cost of the money they borrow. If that happens to be 7% and the primary dealers can get the deal done at that level, then they will. The more money that someone borrow's coupled with their ability to repay is what determines the rate at the time of issuance. Unless you have central banker's manipulating rates lower as we have had for some time. Spain, Greece, Portugal are dealing with the higher rates because of their perceived inability to repay the debt. If/when the US has the same perception problem; it will suffer the same consequence. The ONLY reason we are not there now is because the Fed is buying the majority of US debt issuance.

MachoMan's picture

Let's say that we do have 7% interest rates, who do you propose will buy the bonds?  Who, at that juncture, would be left that would have deep enough pockets AND be willing to risk it on an overindebted sovereign?  Isn't the only way to entice real money into the market the expectation to front run the FED's purchases?  Every once and a while diminishing returns have to be mitigated and the shorts cleared...  this process is going to keep going on in larger percentage swings simply because we're dealing with such low rates...  if you increase 1 basis point over 1%, it's a bit different than 1 basis point over 3%... 

Seriously though, once rates start increasing, who is going to step in and buy?  The only entity capable is the FED...  how can the FED be benefitted from letting rates slip (aside from mitigating marginal returns and slapping all the front runners across the face every once and while)?  I simply see no incentive for any of the control mechanisms to let up...  and I see a very slippery slope once containment is lost...  at that point, why 7%?  Why not 17%?  107%?  Once toto pulls the curtain back, how does dorothy maintain trust in the omnipotence of the all mighty oz?

The other question is that you're talking about this in a vacuum...  what happens to the price of commodities in your scenario?  How do these, and other assets, compete for available money against bonds?  If the 10 year is at 7%, then where is gold?  Where are wages?  Where are house prices?  Are we still running a fiscal deficit?  Trade deficit?

Vincent Vega's picture

You have hit upon what I think is the biggest conundrum of the bond market: people are willing to accept a 10 year yield of 1.85% but you regard it as unlikely people would step in and buy at 7%. Funny thing is I agree. Think about that for a second: people are willing to take a 1.85% yield for the 10 year but not 7% Totally fucked up isn't it. But this has been my point since the beginning of this discussion. Once control is lost; rates have no limit to the upside so 7% 10% or 17% are all possible. Commodities would go parabolic as well. Go back and re-read what I've written. You're basically agreeing with everything I said (and I with you). Again, I'm not trying to be argumentative. I'm merely pointing out (back to the original post) that 7% is not impossible.

MachoMan's picture

Sort of, except that I totally disagree that 7% rates can happen...  this was the basic premise of the discussion...  but in order to be fruitful, it has to be in the context of an existing FED...  otherwise, why stop at 7%?  I'll go so far as to say the dollar would die...  let's just put an infinity rate of interest on there...  it COULD happen...  after all.

The issue, practically speaking, is that if rates are 7%, then I don't think containment can be revived...  and we'll all have a lot more pressing issues to worry about...  rates have no where to go but down because there simply isn't any end demand for debt even at historically low rates...  ultimately, in order to complete the cycle and revive the credit bubble, they need to revive the lending function...  well, the problem is that everyone has figured out the only way rates can go...  this is why you see cliff drops when there are miniscule increases in mortgage rates...  the margins are checked out and teetering on the brink. 

So no, 7% rates are not possible while the TReserve is alive and kicking...  not going to happen.  Of cource any rate is possible after containment is lost...  no one can reasonably dispute that...  the issue is what happens to rates while the fed is still around...  I'll posit they have no where to go but down...  not sideways...  not up and down wildly but lower over long periods of time...  down.  We'll get blips here and there to clean out all the front runners...  but, welcome to japan...  albeit with much less lifespan.

khakuda's picture

I appreciate your thoughtful comment.  You are correct in that it is too high to service, but as I have learned over the years NOTHING is impossible in life or investing.

Greece had single digit rates until the day they went to 18%.  Just because they can't afford 18% doesn't mean it can't happen or that isn't what they should be paying.  History will tell you that is the way it always happens...suddenly and at the worst time possible.  It is the day the markets wake up and tell you the game is over and you must accept the default you have denied.

Put another way, after reviewing the balance sheet (and off balance sheet) of the US goverment, would you loan them money for 10 years for under 2%?  Barring a short term trade on more QE or a recession, that's not a recipe for wealth preservation long term.

PAWNMAN's picture


PAWNMAN's picture


azzhatter's picture

I had an 11.5% mortgage on my first house. Mine was the lowest interest rate on my block

spastic_colon's picture

it appears "they" made up all of the 8+% investing in stocks

RationalPrepper's picture

Trying to time TBT has chewed me up too many times.  I know it will make some people a lot of money at some point (and has in recent weeks).  If the Fed manages to tick rates down one more time, I may try again.  Right now seems like a bad time...they're bound to force rates down again...right???