Yields Plunge Most In 3 Months As Equity-Debt Divergence Remains

Tyler Durden's picture

The Treasury complex is seeing yields (and curves) compress dramatically today. With 5Y at all-time low yields and 30Y rallying the most in three months, the divergence between stocks and bonds appears ever more glaring. 30Y (which just went positive YTD in price) has traded around the 3% yield mark for much of the last 4 months (around 120bps lower than its average in Q2 2011 - pre-US downgrade) and most notably curve movements (as the short-end becomes more and more anchored to zero) have been dramatic. 2s10s30s is now at almost four-year lows and the last four times we saw equities diverge (up) from bonds' sense of reality, it has been stocks that have awoken. Back of the envelope, 2s10s30s suggests that the S&P should trade around 1100 (as we test 1300 in cash today).

30Y Treasury yields have dropped over 10bps today, equal to their biggest drops of the last three months as while volatility remains, the 30Y yield has oscillated around 3% for much of the last four months (around 120bps from the pre-US downgrade levels).

Each of the last 4 major divergences between stocks and the Treasury complex (in this case we use the common carry driver 2s10s30s butterfly) the equity market has converged back to the bond market's reality. Eyeballing the chjart shows that we started to converge right before the LTRO and that provided another nominal jump in price for equities (in mid-to-late Dec). Today's rally in Treasuries has flattened the curve even more and pushed 5s10s30s negative and 2s10s30s near its local lows (which take us back to late 2007 levels).


Charts: Bloomberg

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TruthInSunshine's picture

Yay, alogbots! Turn another red day green by close. I love the smell of the most manipulated U.S. equity markets in the history of the great Ponzi, and I plan on buying Facebook ASAP, especially given its 100 billion est market valuation, on gross revenue of an alleged 4 billion, and actual profits of anywhere from an alleged 220 million to a -xxxmilion (or maybe -xxxbillion?). Yayyyy.

I am fully confident in The Bernank Put. It will be better than his last one in 2007.

economics1996's picture

There will be so many sad faces when that shit is worthless.

TruthInSunshine's picture

Facebook's IPO will be one of those Winners of the New World watershed moments. It always seems to work that way, with a tech bubble in full, boner heat, being the first to burst, revealing that what we're now looking at is a different iteration of the same "print another bubble, fractional reserve banksters!" model in progress that has led so many robotard-following lemmings off the cliffside so many times before.

But hey, at least we got to brush off the old Dow 12000 & maybe 13000 hats again, the 457th time since 1999, and it only took The Bernank the use of 6 trillion in U.S. taxpayer dollars (buying nuclear waste from the best friends of the NYC branch of the Fed) and another 7 trillion in backstopping of future bad loans (soon to grow much larger) to get the indices back to 1999.

Tonight we're gonna party like it's 1999.

VanillAnalyst's picture

Starting my own graveyard REIT after the first post IPO facebook downtick.

IQ 101's picture

I would not be too sure about that facebook bubble thing,

I was of the same mind until I read this guy and it is a real eye opener,

I highly recommend it to the Tylers too as it covers a lot of bases.


TruthInSunshine's picture

Facebook has already primed/peaked.

People are leaving it en masse.

Besides, there was never any sane model put forth showing how Facebook could monetize even a fraction of the activity of Google's users (or at anywhere near the same rate), anyways.

I would go further and say that there's an anti-facebook movement about to set in.

Apple, which has real products and has shown itself time and time again - at least that's real, regardless as to how people feel about its growth prospects and other various issues.

Facebook not only hasn't proved it's sustainable, it hasn't even proven it's ever made a profit, even with nearly a billion users, and it's not even remotely transparent from a business model standpoint (it allegedly will be after the big IPO due to different requirements).

Good luck to all investors the great Facebook fade. Maybe they can milk it for some money during the lock up period. Gamblers of the word unite.

jcaz's picture

Yep- ask Steve Case how that "can't miss" title worked out- heard this crap with AOL, too.....

SheepDog-One's picture

Everyone now takes refuge in stocks, and one morning that whole jalopy will be totaly worthless as well. This is a nightmare slow motion bullet train collision.

TruthInSunshine's picture

The proprietary black boxes (and those who program them) smell them some easy loving from the Bernank, via outright and loudly announced QE3v11.5 coming soon.

The downside is that Birinyi-Biggs-Abby Joseph Cohen Doppler-Cern Model states that it must equal 44.7 times the size of QE1 (or, stated differently, close to 30 trillion) to juice equities.

Let's see if The Bernank is a pro or an amateur money printer.


SAT 800's picture

Shorting the Long Bond Contract on the CME from 144-25 right now. (overdone/short covering/ should be good for a pop on a one week two week timeline).

Mr Lennon Hendrix's picture

The other day you wanted a number for my call, and I said the Dow would be down 122.  The spread from top to bottom was 122.  So you can pay me later.

Vaiman's picture


Markets keep pushing the bounce back.  One day there will be no bounce left and the bulls will be roasting over an open fire while the bears enjoy some prime rib!

Seize Mars's picture


ExxonMobil: big steel machines that drill oil, ships that transport it around the world, and massive plants made of steel that boil it down to gasoline. Market cap: 400bn.

facebook: ????? Market cap: 100bn


TruthInSunshine's picture

William Dudley said that we'll all be eating iPads and filling our cars/heating our homes with facebook soon.

ExxonMobil is a barbaric relic.



SAT 800's picture

Short it; I just shorted APPL a few minutes ago; it's bullshit. it's a revival of the .com retail buyers lunacy of the 1999.

qussl3's picture

As bonkers as APPL looks up here, IF they can get a piece of the refresh cycle pie from MS, and China doesnt go facebook and twitter on them, earnings could still grow.

Still looks completely bonkers, not as bonkers as AMZN tho, now THAT is just NUTS.

NotApplicable's picture

Once the collapse is complete, and the prison planet constructed, FB (or its successor) will be far more valuable than any brick and mortar operation, as the consumer class will be extinct, replaced by the home-bound slave class, who will have every bit of data mined and profiled.

Besides, with the likes of Chavez et al., Exxon (and all other commodity producers) will likely be (inter)nationalized as the race for stuff heats up.

midtowng's picture

A near complete and total divergence between credit market and equities market, plus the only part of the equities market reacting with the credit markets being the banking sector, is exactly what happened in June-October 2007.

Pontius's picture

The 10 yr is up 1% and SPX is in turn steadily up.

Cognitive Dissonance's picture

The daily show is getting real interesting as of late. Stay tuned for tomorrow's episode........well......tomorrow. :>)

Flakmeister's picture

Don't squeeze the Charmin...

or was that Chairman??

kito's picture

ben is already squeezed. lay off the printing accelerator, and down goes the economy. print up a storm, destroy the economy.  ben will choose to keep the dollar from burning up. he wont destroy beloved source of power. he has his bugout bag ready to go when tshtf.....lots of benjamins, will be taking refuge at a goldman sachs underground bunker in switzerland....

qussl3's picture


Dollar hegemony is still more important that all else, but with China fucking around with here yuan swaps, Banana Ben is running out of rope.

Save the dollar and the Chinese laugh all the way to the bank, cashing in overvalued dollars for real stuff.

Let the dollar blow up, and watch the dollar reserve status evaporate.

This whole EZ fiasco, has kept the dollar relevant, how soon before we see the Chinese and Japanese acts?

Poetic injustice's picture

He has to survive a little bit longer. Then, next chairman comes and takes all the problems while Ben enjoys life in Carribeans.

slow_roast's picture

Commodities not even taking place in this bullshit index rally.  Bond and commodities calling it like it is.

TooBearish's picture

Tell it to Benji - hes buying all the backend up

Manthong's picture

When you have infinite cash, it doesn't matter how much you buy..

Until your stuff suffocates you.

NotApplicable's picture

That's the nice thing about a global military to guard all of that stuff, rather than having to keep it all in one place. ;-)

i root for that fat jersey governor's picture

house of pain for the bears!

battle axe's picture

Somebody in the Bond market knows that Greece go boom, perhaps this week?.

slaughterer's picture

El crasho coming... just be patient.  

SheepDog-One's picture

Slaughterer with everyone running wildly from one side to the other it wont take much to flip this leaky canoe.

qussl3's picture

When's Facebook's ipo?

Can't remember which poster who made the call but he's most likely right, Facebook will mark the top.

zorba THE GREEK's picture

What can anyone invest in with confidence when markets trade contrary to reason, history, or logic?

Randall Cabot's picture

Nobody is, there's no fricking volume.

ozziindaus's picture

Correction. Markets are trading contrary to hype and misinformation. Like they say in real estate, DEFLATION DEFLATION DEFLATION

ozziindaus's picture

What is this telling us people? 

The dash to dump trash cash is abashed, indefinately. Carry on. 

sun tzu's picture

Too much cash slushing around. Gold and silver are already up 800% the last decade or so. Real estate has high carrying costs. The Fed is buying up bonds to keep yields artificially low. Do you want to sit on cash and watch the buying power wither away or buy stocks? The Fed is propping up the markets to push people into stocks.

ozziindaus's picture

Too much cash slushing around. Not that you likely have access to. 

Gold and silver are already up 800% the last decade or so. True and this supports the low yield argument.

Real estate has high carrying costs. Real estate is risky. 

The Fed is buying up bonds to keep yields artificially low. The Fed does not control the broad yield curve. It lags the open bond market and is minuscule in comparison. 

Do you want to sit on cash and watch the buying power wither away or buy stocks? Cash thanks. Buying power is rising. 

The Fed is propping up the markets to push people into stocks. The stocks that make up the indices are not a good snapshot of the economy or the stock market in that matter and you're right, the Fed+Friends may have the means to goose the market in that respect. The objective is to infuse "dumb" money liquidity that Wall St. needs to survive. 

CClarity's picture

Us Treasuries are telegraphing extreme problems, especially when you consider what their yields were 3 and 4 years ago.  

Still, gotta say Donald Tsang - Chief Exec of Hong Kong, said it best over the weekend.  "I've never been as scared as now about the world  We do not know how deep this hole will be when the whole thing implodes on us."

ozziindaus's picture

If it took this long for the Don of Hong Kong to get with it, then he deserves everything coming to him. 

Ned Zeppelin's picture

Maybe nobody ever asked him, and King Don of Kong has had this opinion for quite a while. He is certainly correct.  But I am confident printers will be working overtime to fill the hole.  

Stroke's picture

Buckle up buttercup, This rally is a little long in the tooth

Instant Wealth's picture

Wait for a huge grizzly to step out of the woods.

This chart ain't bullish.

ozziindaus's picture

Actually looks like it's about to imbed itself. Good for REFI since the 30 yr mortgage APR is indirectly derived from the 10Y UST. 

T-roll's picture

If rates are this low now, just think how low they'll be when the SHTF.  May be looking at 3.5% interest rate or lower.  Just what the Fed and Obama would love in order to jump start the housing market in time for Spring.

ozziindaus's picture

IMO, Obama's refi mandate to banks for underwater mortgages may not offer 30yr or even 15yr fixed. You'd be lucky to fix for 2 or 4 yrs at the same low rate. This is already and always has been the case in Australia and Canada. 

sun tzu's picture

US mortgages are always 15 or 30 years fixed with FHA or GSE.

ozziindaus's picture

My point is that with any newly introduced regulation that allows underwater mortgages to be refi'd at a lower rate may not stretch out that far. It's only my opinion.