Treasury Yields Post Longest Consecutive Weekly Decline In 14 Years As Credit Tumbles

Tyler Durden's picture

BTFD/STFR Deja-Vu - check. Credit underperforming - check. USD higher - check. Treasury Yields lower - check. Ask an equity guy how today was and you'll likely get a shrug of the shoulders (unless he owns JPM or CHK); ask a credit guy (if you can pull him away from the bar) and you'll get a very different response. Investment grade credit markets were crushed today on the back of pressure on JPM's hedge and unwind expectations - this was across pretty much all the indices that are out there (with over 90 names in the IG9 index also in the on-the-run IG18 index - the numbers simply reflect the series or portfolio that is being referred to). This was the worst week in IG credit of the year and lifted spreads to 4-month wides and at the same time (until late in the day) high-yield and high-beta credit did not follow suit (very unusual and very indicative of the dramatic positioning in the IG indices that JPM has basically blown up). Treasury yields have now fallen for the 8th week in a row - the longest streak since 1998! Away from pure equity and credit, risk assets remained wildly unimpressed by the incredible 8 sigma rip-fest this morning in stocks as commodities all close lower from yesterday day-session closes - though bounced to end around their European open levels on the day (except for underperforming Copper). The USD leaked higher all day with a small interruption thanks to CAD strength on their jobs data this morning (AUD, EUR, and GBP all close at the week's lows). A horrible end to an ugly week as S&P 500 e-mini futures ended very close to their 50DMA on above average volume though low average trade size (which we suspect was dominated by algos in the rip this morning). The losses JPM faces from today's index shifts are already large and with risk managers everywhere asking their traders if they hold any of that 'trash', we suspect more selling and unwinds are to come; and while JPM got all the press, Morgan Stanley is now down year-to-date.

Treasury yields down for 8 weeks in a row - longest streak since 1998...

IG credit was destroyed and as we noted earlier - the rest of the credit complex can't just sit idly by and watch as its all relative-value and so into the close everything was rolling over...

IG credit longer-term...

Once again gold seemed to anchor equities as they tried to pull away but ended drifting back to reality again (red ovals) just like yesterday...

And while JPM got all the press, it is worth noting that Morgan Stanley is now red for the year...

but stocks oscillated and dipped-ripped-n-dipped again...

and finally - risk assets in general (as proxied by CONTEXT) - stayed far less sanguine and in the end equities rolled over and followed their message for the day

leaving ES with its lowest close in 2 months as VIX pushes back up towards 20%, and 30Y Treasury prices are now green again for the year!

YTD performance...

Charts: Bloomberg

Bonus chart: The 8-Sigma ripfest this morning (green arrow) - yellow band is 1 Sigma...

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TooBearish's picture

In other news FITCH downgrades JPM...

battle axe's picture

I am telling you, there could be something else on this trade, something big. These guys had a monster trade on, and I think they were on the wrong side a hell of a lot bigger then 2bil. 

lotsoffun's picture

we all need those battle axes - but they weren't always the sharpest.  not to be rude, but no sht sherlock.


MillionDollarBonus_'s picture

Libertarians are finally having to come to terms with the cold reality that US treasuries are a SAFE-HAVEN whereas gold is a risk asset. And no amount of whining will change that.

Al Huxley's picture

Absolutely, because I'm guaranteed to get my original investment back, courtesy of the FED's infinite USD creation capability.  Talk about a Panglossian best of all possible worlds - infinite borrowing capability with absolutely no negative consequences, and perpetually falling borrowing rates, while prices for everything I need (gas, food, clothes, housing) falls forever.  Soon we'll all be super rich.  What I'm actually going to do though, is take advantage of these fantastically low rates to borrow really big and load up on DUST - the 3x leveraged gold mining stock bear fund.  With gold going to 0, and the miners leading the way, this combo-strategy is going to pay off huge!

LawsofPhysics's picture

LOL, you are outtdoing MDB at his own game, awesome.

El Oregonian's picture

HAHAHAHAHA! Your a dumbass, albeit a very funny dumbass...

XitSam's picture

Less original and entertaining by the day. Can we have the real MDB_ back?

MeelionDollerBogus's picture

Sometimes treasuries are on sale, sometimes gold is on sale. Today gold is on sale & you're an idiot to buy investments when they're not on sale.

Umh's picture


On a short enough timeline everyone can look like a genius.


Stackers's picture

What happens when interest rates go back up to that "safe haven" you bough at 1.9% ?

Timmay's picture

Please, pretty please will it all blow up this time??

THX 1178's picture

patience, grasshoppah... all in due time...

battle axe's picture

Treas are and will keep their yields at historic lows, One reason: FEAR.

Squid Vicious's picture

Time to give Dick Bove his own CNBS show... he can come on right after Cramer

q99x2's picture

I'm going out to buy nickels.

JeffB's picture

You could do worse, I suppose. According to the Treasury, the cost to make them was some 65% greater than the face value awhile back, largely due to the cost of the metal. Not bad odds to start off with a profit and a guarantee it will never go below what you paid for it.

Of course you couldn't fit much in a safe deposit box, or safe and you'd have to dig a pretty big hole in your yard to store a lot.

I wonder where Kyle Bass keeps his.

A few weeks ago my father-in-law was screwing down a metal roof over a garage and lamented the high cost of the washers. He said they were six cents apiece, and he would have just drilled holes in some pennies if it wasn't illegal. The pennies might have been a little big for the job, actually. It looked to me as if they had enough metal to make about 10 of those little washers.


CrashisOptimistic's picture

Treasuries are what they are -- debt instruments of a less than AAA rated entity, but the only game in town with the volume to absorb terrified money.

The 10 year was 2.58% the day the US lost AAA.  It's 1.84% now.  Terrified, elderly money will NEVER go to gold.  Forget it.  They will park in Treasuries.

Money on the sideline is money in stocks waiting to go to Treasuries.

When fiscal realities blow up and Treasuries get dangerous, that money will go to FDIC insured money market funds.  It will simply, unequivocally, never go to gold, and I think the rational folks on ZH know it.  You are just never going to persuade 75 year olds to risk their lives in gold.  An argument that "it is the only way to hold value over decades" will not speak to a 75 yr old.

They will NOT risk that nest egg because a person 65 ON MEDICARE still will need $250K for medical expenses (beyond Medicare) for the rest of his life.  This is the ultimate in risk aversion.

LawsofPhysics's picture

Unless they held it their whole lives, like my grandfather (survived two world wars and great depression), my father, and myself.  been buying some more silver and will keep doing moreso into the dip.  Remember, stay ahead of the herd mentallity.

Al Huxley's picture

Absolutely.  Hopefully there's never a disorderly exit from the treasury market, and/or the USD.

ForWhomTheTollBuilds's picture

"Terrified, elderly money will NEVER go to gold.  Forget it.  They will park in Treasuries."

I've often thought that before this gold bull is over, we will be treated to the spectacle of our fellow citizens and most western governments doing *everything* they can to get away from gold.  Selling at *any* price, refusing to buy no matter what the evidence, showing great pride at the fact that no matter how badly things are going, at least they aren't stuck with gold.

In the long run this will facilitate the moving of nearly all gold from west to east which is as it should be for a good currency in conditions such as these.

CrashisOptimistic's picture

Maybe.  There is a regional issue in conflict with a global currency.

2.58% to 1.84% is about what, 30% gain for bond holder of August?  That's a crushing advance vs more or less everything else.  And it's in the most liquid currency of the entire world.

The January event does loom, and there may be merit in stepping aside later this year for it, but in the final analysis, January is going to be all about the credit rating agencies, not Congress or a President.

If they try to undo the cuts, the agencies HAVE to downgrade.  If they let the cuts happen, GDP is destroyed.

Yeah, nice few months to step aside.

spartan117's picture

Well, if the Federal Reserve was "Operation Twisting" gold, it would be up 30% as well.  I don't see the Fed buying gold, do you?

CrashisOptimistic's picture

Well, you can make an oddly strong case that the Fed executed QE to stop this freefall of interest rates.

2.58 --> 1.84 bespeaks DEFLATION about as loudly as it can be yelled.  There is no growth.  Deflation is dominant.

Bernanke HATES deflation. QE is to stop it, be it QE or Twist.

He failed.

JackT's picture

Serious question -> is there such a thing as "hyper-deflation"? I can't help but think of all the "wealth" that was and will continue to be vaporized. All that credit has just disappeared. Generations of accumulated wealth (or residual wealth) has been squeezed dry like a sponge, to the point that the population has nothing left from which to borrow or pawn.

I don't know if the world is prepared, or even capable of seeing long term no-growth. And I don't know if the printers have enough ink to fill the void of what simply vanished.

How many stones must remain in place Inorder for a pyramid to remain standing? 33%?

CrashisOptimistic's picture

Now your really talking about Underlying Causes.  That can get esoteric so maybe best to avoid it.

My suggested points would be this:

1) Oil drives everything.  Drilling in miles deep water and 30 degree below temperature locales does not bespeak a world of abundance that can continue to fuel the global engine.  Oil's flow rate out of the ground is insufficient and there really is nothing whatsoever that can be done with complex finance to undo that reality.

2) Given the destruction of real estate value, and how all those non performing mortgages in MBS still carried at absurd valuations are inevitably going to get marked to reality (somehow), then it is simply not clear that the Fed printing money, or the ECB printing money, is not replacing money rather than adding it.  This undercuts the theory that the printing MUST cheapen the value of the dollar.  Maybe not.  All money is printed.  It's all a human concept and has no real meaning.  Printing per se is not evil.  Only excessive printing is.  So maybe the printing has not been "excessive".  Maybe it has been exactly the right amount.

3) The accumulated debt that has been incurred to try to amplify what little margin above adequacy the oil flow rate was achieving is crushing.  It can't be erased.  My personal scenario for dealing with it is legislation that US T's cannot be inherited in an estate.  As death approaches, one would divest, of course, but if there is a war that killed maybe 100 million Americans, they would not have a chance to divest and presto, debt gone.

jimmyjames's picture

You are just never going to persuade 75 year olds to risk their lives in gold.  An argument that "it is the only way to hold value over decades" will not speak to a 75 yr old.


I suspect you're right-in fact I'll bet that most of the public-no matter their age will likely never buy gold-

It hasn't mattered so far and I doubt it ever will-

Gold is doing fine without them--

But "something" has been driving it for the past 11 years and as the chart shows-the general public have never have been in it and it sure as hell isn't because of its industrial qualities that demand remains high--

Maos Dog's picture

Hey crash!

I am not challanging you, but I would really like to see the link or data behind this here:

"They will NOT risk that nest egg because a person 65 ON MEDICARE still will need $250K for medical expenses (beyond Medicare) for the rest of his life.  This is the ultimate in risk aversion."

Can you post it please, thanks!

CrashisOptimistic's picture

It's a pretty common stat embedded in my skull.  

Here are a few links and they are surprisingly recent.  Looks like I mean for a couple, not a single.

Nuances here:

Note that in general, this profile of numbers pretty much cease to exist within oh, five years, because there is a fairly steep cliff of when corporate pensions stopped.  With them, corporate health care plans that handle medicare supplementals.

For you young ZHers, heads up, medicare only covers 80% of the expenses of your parents.  Your parents have to carry a supplemental policy to handle the other 20% and because old folks have lots of medical expenses, the supplemental policy for that 20% has premiums that are roughly the amount you'd pay today as a 45 year old for a non group plan.  In other words, they are likely paying $7500/year for premiums on a plan that only pays 20% of their medical bill (medicare the other 80%).  Medicare has a monthly premium too, about $1200/yr.  So add that up.

Thats' how the 250K number accumulates.  (and drug expenses . . . and dental (not covered by those medicare) and other non medicare covered stuff like eyes (glasses), and hearing aids)


Maos Dog's picture

Thanks so much, pretty fucking dismal. So gap insurance + medicare is going to eat 33% - 50% of the typical social security payout, and that's without including saving for drugs and buying long term health care insurance.

CrashisOptimistic's picture

Nod.  That is pretty much why I say it's the ultimate risk aversion.

They dare not dabble in gold.  If they lose, they literally die.

Oh, and btw the average SS benefit is just under $15,000/yr.  1200/yr for medicare and say, 4000/yr for supplemental, plus glasses, dental appointment and drugs, yes, the old folks spend about 50% of their money on medical.

They have $7500/yr left for their rent, food, cable TV, gasoline, etc.

There's a word for this.  


And after January when this stuff HAS to be cut, there's two words for it.

More impossible.

SPAREPARTS's picture

The old arn't buying Treasurys, are you kidding. the money going into this are people who think they can get out, kinda like as easy as tradin a car, you better be quick. We are at hyperspeed sometimes, not far off either


JeffB's picture

That's assuming inflation doesn't jump to double digits or worse. I don't think that's a safe bet. It's already happened in my lifetime and the only reason interest rates are so low is because the Fed's pumping out the money to buy the excess supply.

If China, Russia, Iran, India & others continue moving away from the dollar as a reserve currency, things could blow up in a hurry.

What are the odds dirt poor people in third world countries would want to use gold as a means to transact business?


flyonmywall's picture

I think you are wrong. Maybe American elderly money will not go to gold, but in Asia, gold is the ultimate store of value, and every Indian and Chinese 10 year old knows it.

Slowly, attitudes in the US are in the process of changing as well. People with some $$ are looking to park it in something. Whether it is real estate (because it's down), or productive land, or even metals. They know the paper deluge is coming.

They may not be able to quite articulate it yet, but they do know something is coming.


Ness.'s picture

I agree with you.  Case in point.. my brother is planning on retiring from the police dept. after 27 years (a complete and utter moron when it comes to his own finances) and he asked me if I knew a way to buy physical gold and silver.


One of the happiest days in my life.

SPAREPARTS's picture

Big money will have to buy gold, they just churning against each other, trying to out smart, and they keep shooting themselves in the leg.Soras maybe even Buffet, he was the one who said Dirivitives were terrible, now he turns a pretty profit. They wont be able to resist

Village Smithy's picture

Great summary. I was surprised by the fact that ES closed lower than anytime in the last 2 months. All this vol can hide little gems like that. Thanks.

bullmarket's picture

Getting back to the topic of a blowout week in Inestment grade:

This was the worst week in IG credit of the year and lifted spreads to 4-month wides and at the same time (until late in

Not sure why lqd has such a good day and week.

Care to comment??



Umh's picture

Already said.

Stackers's picture

I really just do not get these "credit markets" at all.

qiongqiong's picture

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