Treasury Spasms

Tyler Durden's picture

As Bill Gross has been more than happy to demonstrate on several recent occasions, the recent sell off in US Treasurys has been sharp and violent, wiping out all year to date capital gains in the 10 Year in a few short weeks. The flipside to that is that this is not the first such headfake in the bond market, and it certainly will not be the last as David Rosenberg shows today with a chart summarizing all the "spasms" experienced in the 10 year Treasury since 2007. In fact, based on the average duration and move severity, the 10 Year sell off may not only continue for twice as long (on average it has been 49 days, and we are only 19 days in in the current sell off episode), but the final tally may be a further selloff well into the 2% range (the average decline in yield is 88 bps, double the 43 bps widening to date). At the end of the day will it make much of a difference? Very likely not: after all the deflationary implosion has far more to go before all the central banks
engage in coordinated easing, and as a result superglue the CTRL and P
buttons in the on position, leading to the final round in the global
currency devaluation race.

Rosie's summary:

Of course the Treasury market would sell off in this backdrop, and the 10-year note yield has already moved up more than 40 basis points from its nearby multi-decade low.


It was overbought then. It is oversold now... which is why it successfully tested the critical support around the 1.87% level late last week.


But let's not pretend we haven't seen these hiccups before. We have had no fewer than eight such episodes of 40+ basis point spasms since yields peaked in the summer of 2007. Each one did not last long and presented a gift of a buying opportunity for patient investors who have an ability to see the forest past the trees. Typically, these hiccups last 49 trading days and the yield rises an average 88 bps, with about three-quarters of the prior rally being reversed.


So can this last another month? Recent history says yes.


Can we see a move to the 2-2.25% band during this time? Recent history says yes.


But is this anything more than a blip in what is still a secular bull market in bonds? Again, recent history would say yes.

Finally, the definitve signal to go long the bond again will be just as Goldman says to short it, which as readers will recall, is precisely what happened the last time Goldman said it was a once in a lifetime opportunity to sell bonds and go long stocks. We all know what happened next.

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Aziz's picture

And yields will promptly fall again upon:



The Monkey's picture

Bill Gross wants yields to rise - he is near the end of the treasury rally & wouldn't it be nice to get a nice seesaw pattern for long rates the next 5-7 years?

AnonymousCitizen's picture

I promise not to QE3 in your mouth.

FreedomGuy's picture

Seems to me that the EU meltdown will be next which would push American treasury prices up even further? Long term it seems yields must rise to the price of money but the Fed and every other central bank is artificiallly suppressing them to keep governments solvent on their debt loads.

malikai's picture

...only to be faded yet again.

No QE until at earliest Dec, unless Obama is fired, in which case once the next real dip comes. The only question is what tricks, like that you describe, will be pulled.

Eireann go Brach's picture

Au contraire Gross! Gross comes from the same side of the fence as the Squid! that yoga doing, skelator looking, high school girl sounding douchebag wants everyone to trade what he says to do, but actually means the opposite!

philipat's picture

This is just Wall Street's way of saying "Thank you" to all the Muppets who sold what was left of their equity holdings and moved into Bond Funds?

fonzannoon's picture

I have been watching people duking it out over interest rates lately on sites like seeking alpha. The train of thought on this site seems to be spilling over in the comments section there a lot.

thepigman's picture

Seekingalpha became totally useless as soon as they accepted members from the public (retail) and let them post their own views in articles.

fonzannoon's picture

I used to agree. Now I see some anger on there. I am hoping since, like you said, retail now posts their own views, that the anger goes from the comments section to the posts.

malikai's picture

I have to admit, I've seen some decent analysis on SA. But it was a long time ago, and I haven't been there in years. 

thepigman's picture

You gotta be smart and angry, not stupid and angry. I thought

instiitutional analysis was pretty bad until reading some of the seeking

alpha stuff. They don't even know what they own or why they own it.

fonzannoon's picture

I have seen several of the screen names I know on here on there.

bank guy in Brussels's picture

And then if need be they can start a new bigger war

And everyone's accounts will be 'patriotically' and 'automatically' subscribed into 'safe' 1% interest 'war bonds'

magpie's picture

...and Facebook will be nationalized and Apple granted a smartphone monopoly

centerline's picture

please define "safe"

errrr.... nevermind.  I know where this goes.

kito's picture

i just read mishs links to the future of robots and ai.......if all of the big box stores continue to transition to automated check-out machines, can anyone tell me where the unemployment rate will be in 5 years??????    jeeeeezuz man, all of those minimum wage retail jobs gone......holy crap......then what????????.............

fonzannoon's picture

I read that in the Times Kito. In other news they are already past humans and laying off jellyfish.

I think I need to buy a gun's picture

there is  a shortage of pickers,,,,,fruit and vegtable,,,,there are plenty of jobs

machineh's picture

... and a surplus of skilled pickers (guitar and banjo)

kito's picture

all will be automated soon.................

kito's picture

what if tyler is really an algo driven computer? do we reallllly know???????

NotApplicable's picture

Depends on whether or not FEMA camp make-work counts.


chubbar's picture

An interesting read on the motives behind 9/11 that I don't remember reading before, at least some of it is new to me.

Monedas's picture

Try new SPASM .... a SPAM flavored Jell-O from General Foods !      Monedas      1929        Eat your potatoes ! Low in fibre and anti-oxidants !  High in calories and an excellent source of starch !  

slewie the pi-rat's picture


pSinger, leading neoCon vulture capitalist and close personal friend of mittens wuld BEG to differ...?

with rosie, also a mittens-handed man? 

soon, we'll have barney and nancy debating the future of the 10-year?

on zH?   nah!  we don't have time!

keep drinking, tyler!

BurningFuld's picture

T'is but a waiting game between the Dollar and the Euro. Will all out anarchy start or will one or the other blink first. The USA is doing the smart thing and arming all the civil servants. The only problem with that plan is when the civil servants turn the guns on .gov.

NotApplicable's picture

BTW, the word you're looking for is chaos.

As for armed civil servants turning on the government, WTF are you smokin? Those people have absolutely no future without being an armed bigshot for Uncle Sugar.

They'll likely still be bitching about being underpaid as they're shooting at you.

BurningFuld's picture

Me? I have too much faith in humans I guess.

chump666's picture

China v's the Fed.


All China has to do is send rates up on the 10 and 30 and the Fed's balance sheet turns into a nightmare loss.

The financial war has begun and the US has zero ammunition for battle.


malikai's picture

They bought the wrong bullets? I don't know..

But if so, lol.

booboo's picture

"Treasury" implies that there is something of value stored inside, Manure Spreader is more appropriate. 

Jim in MN's picture

And oh by the way over in the 'real' economy...the Mississippi River is closed due to low water levels.

MEMPHIS, Tenn. (AP) — Nearly 100 boats and barges were waiting for passage Monday along an 11-mile stretch of the Mississippi River that has been closed due to low water levels, the U.S. Coast Guard said.

New Orleans-based Coast Guard spokesman Ryan Tippets said the stretch of river near Greenville, Miss., has been closed intermittently since Aug. 11, when a vessel ran aground.

Tippets said the area is currently being surveyed for dredging and a Coast Guard boat is replacing eight navigation markers. He says 40 northbound vessels and 57 southbound vessels were stranded and waiting for passage Monday afternoon.

Tippets said it is not immediately clear when the river will re-open.

That can't matter or anything can it....?  Erm.

JeffB's picture

I'm a little confused. The quotes below sound like they're backwards to me:

"but the final tally may be a further selloff well into the 2% range (the average decline in yield is 88 bps,"

"But is this anything more than a blip in what is still a secular bull market in bonds? Again, recent history would say yes."

slewie the pi-rat's picture

i have no idea, myself

never been here before is abt all i'm sure of

the guy below, yogi, seems to find some comfort agreeing w. tyler abt "devaluing the US $" 

tyler writes about that b/c of deflation too!  imagine that!

yogibear's picture

Bernanke and the Fed has no choice but to print and keep devaluing the US dollar. His dog and pony show is amusing.

eddiebe's picture

I had a feeling that QE 3 would be prompted by the bond market.

CheapBastard's picture

House prices and the rates:

Engineering lower house prices with ZIRP. Will it last? Here's the Doctor:

The goal from the Fed’s perspective is to keep prices high because banks are then able to keep more collateral on their balance sheet at inflated levels.  In reality, a buyer is better off purchasing say a home at $300,000 with a higher rate than say a $500,000 home at a very low rate.  This is essentially what the battle has boiled down to on the housing front.  It has worked so far in 2012 but does it have staying power?

Town Crier's picture

How come TBT and TBF are not moving up?

eddiebe's picture

It's called market intervention.

Town Crier's picture

Again I lean toward profanity.

deflator's picture

TBT and TBF are about the 20+ year Treasuries -- they are talking 10 year Treasuries.

Town Crier's picture

But shouldn't TBT and TBF move in tandem with the 10 year?  I mean the reverse of the ten year?  I mean shouldn't these things be moving in directions that have some correlation?

eddiebe's picture

ok.,then market manipulation, is that better?

Jim B's picture

Treasury market is beyond broken, remove the FED as a buyer and we will see a real market!