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Treasuries Got Bernanke'd: 3 Years Gone In 3 Weeks
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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treasury bonds and interest.... those 2 just don't rime...
They look do for a pretty fierce snapback..
http://www.quantsig.net/img/bond_5yust.png
http://www.quantsig.net/img/bond_30yust.png
Same for bunds.
I like how the author tries to make his point by showing a longer term chart that totally invalidates his thesis.
Muppet Show, anyone?
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!
Bernanke just has to "Twist" harder. Maybe at Jackson Hole he'll announce he's accelerating Operation Twist's security portfolio reallocation.
Fed Trapped in Long Duration Portfolio
http://seekingalpha.com/article/811031-fed-trapped-by-its-long-duration-portfolio
Slowly people are losing faith in every paper asset out there. Especially when the risk/reward is nearly flat
Slowly they lose faith, but when the fall comes in Treasuries, it will be like a lightning. 100 times Lehman.
...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.
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"...you 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 Money...wow!...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.
fat finger,....
"save my life I'm goin down for the last time!" Meatloaf money bitchez...
made some good scratch on TBT.
this bond bubble is going to POP. Bill Gross called it, just a year too early!
The muppets thought they were front running the FED!
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!
You must be getting blown out going long the dollar. Sucks to be you.
i'm going on record that today the 3pm levitation will actually be the 3pm SELL OFF. why? cause my crystal ball says so.
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.
Ah the fools. Playing right into his hands. You're just making the bonds cheaper for The Bernank to buy come September.
just wait for the war mongers to start the rockets in the strait of hormuz and all will be reversed in minutes
I think people have just lost interest...
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.
Nothing is safe.
My PM's are...
Yep, a really big heavy safe too.
lost another one to Ditech, muppetz
When the SHTF you'll make that and more on the overnight open
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.
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.
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.
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, 120x...you 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.
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.
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.
7% ten year and we have the largest stock market crash in history followed by an inflationary holocaust.
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.
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.
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'
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.
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.
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.
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.
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?
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.
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.
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.
7% IMPOSSIBLE??? ISN'T THE 50 YEAR AVG ON THE 10 YR. IN THE NEIGHBORHOOD OF 6%??? THE "IMPOSSIBLE" WILL BECOME THE EXTREMELY POSSIBLE WHEN THE WORLD WAKES UP TO THE FACT THAT THE BERNACK CANNOT BE SUCCESSFUL IN INFLATING AWAY OUR 16 TRILLION DEBT.
I THINK YOU OVERESTIMATE THE POWER OF THE FED. IT"S ALL AN ILLUSION!!!! RIGHT NOW WE HAVE "SAFE HAVEN" STATUS, AND RIDICULOUSLY LOW YIELDS, COURTESY OF THE FED BUYING 70% OF ALL U.S. DEBT AND EUROPEAN DISTRACTIONS. AS THEY SAY, MARKETS CAN STAY IRRATIONAL MUCH LONGER THAN AN INVESTOR CAN STAY SOLVENT BUT ONE DAY THIS GAME WILL END. YOUR WITNESSING THIS PLAY OUT IN FRONT OF YOUR VERY EYES IN EUROPE. WHY COULDN'T IT HAPPEN HERE? BECAUSE WE ARE THE ALMIGHTY U.S.A. AND BERNANKE IS ALL POWERFUL? GUESS THE DEPT. OF HOMELAND SECURITY BOUGHT THOSE 400 MILLION ROUNDS CAUSE THEY EXPECT A HAPPY ENDING TO THIS MESS!!!!!
I had an 11.5% mortgage on my first house. Mine was the lowest interest rate on my block
it appears "they" made up all of the 8+% investing in stocks
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???
The day people panic and run AWAY from treasuries is the day the game is over. Have people on here forgotton when the ten year was at 2.3% this spring and people were panicked at the thought of higher rates? Then what happened? This time is different?
People sell Treasuries all the time.
The only thing lacking now is buyers in a panic from Europe, and we lack that only because they are on vacation.
When they return, so will the daily bad news, and their money.
Everyone will be much poorer now that we've allowed the psychopathic Benron to test all of these wonderful theories. That's too bad, since most people will be collateral damages. Financial repression.
BTFD!
It is no different than the other 7 bond pullbacks in the last 4 years. BTFD...it works until it doesn't.
Private individuals who own the Fed will try and squeeze the lemon when they're not happy with the paycheques of interest on their money.
The citizen slaves are supposed to peddle harder and faster for the debt masters one certain day.
Just remember that any increase in yield is an increase of their paycheques. Pitchfork time.
And even when one does make dollars on a trade, bonds or otherwise, those dollars are worthless.
A friend of mine was trimming buds and she got paid in cash that someone had buried; it was rotting. The cash rotted.
Your dollars are worthless, no matter the investment. Invest in stocks, you will be paid in cash. Invest in bonds and you will return cash.
Get.Out.Of.Cash.
Am I getting junked by dollar bulls?
lol
Show yourselves, 'o bulls of the King Dollar!
you got junked cause you hang out with people who accept rotten fiat as payment. Were the buds good at least?
Mr LH I accidentally hit the wrong arrow. One of them was me. Whoever the other one was should step up.
Ah ok.
Yeah one troll on each thread makes sense. When there are two it feels like there is a WS whore somewhere in our midst.
Go back and hit the arrow you meant to hit. Since it was your vote it will change it. The negative will be removed and a positive will stand.
like he said he had 2 down arrows. i was one of them. math
wanna know why yields have shot up in the last week?
Same reason they shot up about 11 months ago and again in mid-March:
I'm trying for the *third* time to refi my mortgage. I just started last week. SO, of course Treasury prices (and MBS prices) are tanking!!
I'm freakin' cursed.
And yet ZH advocated front running the Fed less than 2 months ago:
http://www.zerohedge.com/news/presenting-fundamental-flaw-feds-thinking
Quote:
In simpler format:
I junked you because you are a typical putz. If you went long treasuries 2 months ago you did fine. If you went long treasuries a week ago you are getting smacked around. So what? You think zirp is gone? You think Nirp is not on the way? Why....because of a move up to 1.8%? Sheesh....
Do you even know how to read ? Or do you just read the bold and not the rest of the article? The Hedge was not advocating that strategy. Tyler was stating that was the game at that moment in time.
So what? Hang in for the long-term. When the recession kicks in during the 1st qtr of 2013 and QE3 is implemented and Operation Twist is extended yet again, those yields will drop like rocks. Stop bitching about a short-term uptick in yields. It's not like we're seeing a trend reversal here.
1) 30 year yield just climbed thru its 200 day moving average?
2) At what point does the favorite yielding stocks like T and VZ get spanked with higher rates?
Good thing the Fed values its mountain of Treasuries at cost, not market!
The Bernank says:
'Fight paper losses with more paper! I HAVE NOT YET BEGUN TO PRINT!'
And this is just the beginning, long long way to go.
Maybe we should move to high yield debt and junk bonds??? Ha! Ha!
Gravity is a bitch.
heres ur problem right here, yourve got this New World Order Banking Cartel all over inside your prosperity intake manifold and its causing a quantum rehypothecation loop in ur money systems.
we can fix it but youre going to have to leave it at the shop over night
HELICOPTER!
It would seem the Ben Bernanke is really the one who got Bernanke'd given the composition of the Fed balance sheet. What's that DVo1 for the Fed again?
I sold my treasureis for trading purposes a while ago, look for a market top in early september!!
It´s minor so far. The price of govt. bonds is still close to a 200-year high and the yield conversely near a 200-year low.
http://yhoo.it/QGcPaJ
Nobody buys treasuries for a yield. You buy them because they go alway's up.
So now it is time to sell.
And there is an old saying: "He who sell first, sell best"
The bull market in govt. bonds has been extremely consistent for at least a quarter century now. I doubt that it´ll end any time soon. Eventually they´ll bid the yield of the 10 yr down to almost zero.
Do they play God Bless America at every sporting event? Cause to me basically you're fucked.
I give up. The money trapped in the 401K is as good as gone. No amount of trading mutual funds in/out of stocks and bonds can turn a profit. It's impossible.
America is doomed.
Risk on.....!