# When does the yield on US Treasuries blow out?



## Bushman

When does the 'flight to safety' stop? US treasury yields still hold up. How long until subprime morphs into a full-blown currency crisis? Surely, at some point, the thought that the Yanks could default on their debt must enter investor's heads. I am not saying they will default - personally I think the US has the weight in numbers and existing financial infrastructure to see this through. 

But yield is a measure of risk and the more the Yanks bail out Wall Street, buy commercial paper and raise overall US debt (vs GDP and tax revenue), the risk of default is higher and this the yield must rise! 

It is just foolishness on the part of the US investor to simply trust US treasuries as a 'safe haven'. 

Good news for the price of gold!! 


*From The Age: *

To sovereign risk: will the bond market crack?

A 30-year graph of the US 30-year Treasury bond shows a *generational bull-market.* The yield on the bellwether bond peaked at 15% in 1981 and has been in decline ever since, rallying that is (bond prices are the inverse of yields). *It now stands at 4%*.

The ``flight to quality'' in the present cycle fuelled the recent demand.  Realistically though, given the parlous state of the US economy and banking system,* is 4% enough risk premium for owning an asset whose principal may never be repaid*?

The interest burden is enough, especially in light of the looming recession, pressure on tax receipts, record consumer debt and a deficit approaching $US1 trillion. The American empire is in terminal decline.

Risky investment

*Ask yourself, if the US were a company, would you invest in it? The management isn't exactly inspiring, let alone the numbers.*


Yet the question must be asked: when confidence and trust are shattered will lowering rates bring borrowers back to the market?


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## Bushman

Ex-Goldman Chairman John Whitehead worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds."  Ha. Then again the flight to USD is still well established so the old world order of capitalism still plays out. Time will tell. 

'Remember former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression." See previous Paul B. Farrell. 
He worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Politicians and public are delusional, promising huge new programs plus tax cutting: "This is a road to disaster.' Like Sartre's existential tragedy, "No Exit," he says: "I don't see a solution." '
(source: Marketwatch, Farrell column. He is one 'doom & gloom' merchant that one but has the odd useful snippet amongst the prozac and bourbon.)


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## Aussiejeff

Bushman said:


> Ex-Goldman Chairman John Whitehead worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds."  Ha. Then again the flight to USD is still well established so the old world order of capitalism still plays out. Time will tell.
> 
> 'Remember former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression." See previous Paul B. Farrell.
> He worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Politicians and public are delusional, promising huge new programs plus tax cutting: "This is a road to disaster.' Like Sartre's existential tragedy, "No Exit," he says: "I don't see a solution." '
> (source: Marketwatch, Farrell column. He is one 'doom & gloom' merchant that one but has the odd useful snippet amongst the prozac and bourbon.)




This is why the Fed (and it's sycophants) are now pushing the rumour that they have "UNLIMITED" funds to handle the crisis.

Obviously, the debt can now grow to an unlimited / infinite size because the Fed has unlimited / infinite resources to fund that debt.

Game over if you are a True Believer. Let the Big Boom Balloon rise....

:bananasmi


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## sinner

Hi guys,

What a contrarian thread! lol

The rally in USD and JPY will stop when deleveraging ends. When redemptions and margin calls and credit lines end people will be able to stop liquidating their assets to buy USD to pay their bets. The same applies to JPY and the yen carry trade.

Have some charts

















and here is my favorite all time chart from this crisis: the cost to insure US Treasuries against default (I didn't include the CDS for US commercial real estate as you'd probably have an aneurism just looking at it)






EDIT: In relation to the last chart, pretty interesting to note the July spike in 10 year CDS spread was causing contrarians to run for the hills...now that spike just looks like childs play!


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## c-unit

haha some classic charts there sinner. Shows the confidence everybody has in the US treasury


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## Bushman

Its going mainstream...the so called 'bond bubble'. He he. Tick tock. Maybe deflation will save the Treasurites (in God and the USD we trust); I doubt it. Deleverage away busy beavers. 

Then again, as another poster put it so succinctly, it is just another 'opinion piece'. This whole confidence sapping debacle has just been one opinion piece after another sapping away confidence. Now the pidgeons are coming home to roost big time. 500,000 odd unemployment in the US. Trilliobs being printed and pumped. The great deflationary vs inflationary arm-wrestle. If you bet on history, then inflation will win eventually. Then watch out the 'bond bubble'. Once again, good for gold. 

http://business.theage.com.au/business/markets/the-bond-bubble-20081208-6td7.html


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## explod

> In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. Three weeks ago, on October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies. That situation was reversed with the onset of savage global deleveraging which is still going on. How much longer? Watch the US Dollar exchange rates. And watch US Treasury yields




Posted this up yesterday on the Gold thread (and courtesy the Privateer Newsletter) but more appropriate here.   Find it had to get my head around the T bonds, reading up but as I have never considered them before trying to see how it all fits.

Great thread Bushman.   We will be keen on movements soon.


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## arco

EW Count if its any help

http://blog.afraidtotrade.com/wp-content/uploads/120708-0313-notes11.png

http://blog.afraidtotrade.com/wp-content/uploads/120708-0313-notes21.png


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## acouch

of interest
ac

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25295086


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## Stormin_Norman

great graphs sinner. shows why gold will come into its own and the USD will tank later in the year i think.

the bond bubble has to burst. it cant stay the current way....can it??


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## Stormin_Norman

> U.S. Treasuries prices fell steeply early on Monday, extending the previous session's sell-off on prospects for a swelling supply of government debt that will be underscored by auctions this week.
> 
> Despite the tentative sell-off in ultra-short dated government securities, deep-seated fears about the crippling blow the global financial crisis is dealing to the world economy could swiftly reignite a flight-to-quality stampede.
> 
> That mass buying last year lifted Treasuries to their strongest performance since 1995.




http://www.forexfactory.com/news.php?do=news&id=142532


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## Bushman

Stormin_Norman said:


> .
> 
> the bond bubble has to burst. it cant stay the current way....can it??




All bubbles burst eventually .... that is the one thing I do know. See 'US housing market' for a topical example. It took longer than some expected but pop it went. 

Treasury has expanded its balance sheet exponentially over the last three months post Lehman. They do not want deflation, they do not want a 'flight to safety, they want to save the US empire! It is a basic demand, supply and risk scenario and it is a fricken time bomb for those long treasuries. 

My 2c...


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## Aussiejeff

Bushman said:


> All bubbles burst eventually .... that is the one thing I do know. See 'US housing market' for a topical example. It took longer than some expected but pop it went.
> 
> Treasury has expanded its balance sheet exponentially over the last three months post Lehman. They do not want deflation, they do not want a 'flight to safety, they want to save the US empire! It is a basic demand, supply and risk scenario and *it is a fricken time bomb* for those long treasuries.
> 
> My 2c...




... of the Nuclear variety....


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## Stormin_Norman

so what will happen when that bubble bursts?


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## Bushman

Stormin_Norman said:


> so what will happen when that bubble bursts?




Bye bye USD, US bail-out (should be called the China, Russia, Middle East bail-out as they are they debtors) etc, etc. 

As you say, good for precious metals.


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## Stormin_Norman

ill write up a scenario when i get the time (im a monetary economist). just wanted to hear other's thoughts on what potential effects the collapse might have.


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## Stormin_Norman

> That flank is the bond market. With the supply of dollars and dollar-denominated debt set to explode, you'd expect the appetite for U.S. bonds to fall. And yesterday, it began to do just that. In December, 30-year U.S. bond yields were hovering at 2.51%. By the close of yesterday's action, they were above 3%.




the daily reckoning.

a bubble is when something rises above what could ever possibly be considered 'sensible'. what could keep the bond yields down? fed buying perhaps?


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## amory

Stormin_Norman said:


> the daily reckoning.
> 
> a bubble is when something rises above what could ever possibly be considered 'sensible'. what could keep the bond yields down? fed buying perhaps?




wasn't it the general understanding that it's all the other countries are buying US bonds?  so much so that where 'flight into security' is concerned, the Bonds were well in front of the POG, for quite some time.

it is a bit of a riddle, because Bonds are backed by the Dollar which, as we all know, is supposed to be heading for disaster.


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## Bushman

amory said:


> wasn't it the general understanding that it's all the other countries are buying US bonds?  so much so that where 'flight into security' is concerned, the Bonds were well in front of the POG, for quite some time.
> 
> it is a bit of a riddle, because Bonds are backed by the Dollar which, as we all know, is supposed to be heading for disaster.




Its easy to me - those countries need the US to recover in the short-term. It is the great nation-building game - 
1. Make cheap white goods to sell to the US consumer; 
2. Increase foreign currency reserves;
3. Use foreign currency to buy US-gov't treasuries; 
4. Treasuries used to build money supply in the US, ending up as debt in the pocket of the American consumer. 
5. Repeat ad infinitum. 

So those foreign debtors needs 'Joe Average' to be under the illusion that increased money supply is actually wealth in his pocket, meaning he will buy the tripe that is fuelling the third world's nation building. 

This is what pulled Japan out of being bombed into oblivion after all - selling  consumer trinkets to the Yanks. When they became 'wealthy', they passed the industrial baton to the Chinese. 

Question is, what happens when China becomes 'wealthy' (assuming resources don't run out in the process)? Maybe the baton will then pass to the Africans?


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## amory

Bushman:
_<< 2. Increase foreign currency reserves;
3. Use foreign currency to buy US-gov't treasuries; >>_

isn't it then reasonable to assume that China or whoever else is pursuing this policy, wouldn't be the least bit interested in dumping treasuries &/or the dollar?  even if the yield goes down to zero, which is unlikely.

in that case, the US can go on printing money ... _ad infinitum_ as you put it ... without endangering the dollar unduly.  the Fed seems to rely on it.


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## sinner

http://www.nakedcapitalism.com/2009/01/ny-times-china-cooling-on-us-debt.html


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## GumbyLearner

Bushman said:


> Its easy to me - those countries need the US to recover in the short-term. It is the great nation-building game -
> 1. Make cheap white goods to sell to the US consumer;
> 2. Increase foreign currency reserves;
> 3. Use foreign currency to buy US-gov't treasuries;
> 4. Treasuries used to build money supply in the US, ending up as debt in the pocket of the American consumer.
> 5. Repeat ad infinitum.
> 
> So those foreign debtors needs 'Joe Average' to be under the illusion that increased money supply is actually wealth in his pocket, meaning he will buy the tripe that is fuelling the third world's nation building.
> 
> This is what pulled Japan out of being bombed into oblivion after all - selling  consumer trinkets to the Yanks. When they became 'wealthy', they passed the industrial baton to the Chinese.
> 
> Question is, what happens when China becomes 'wealthy' (assuming resources don't run out in the process)? Maybe the baton will then pass to the Africans?




Fantastic post Bushman. Spot on!


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## Bushman

We're all blowing bubbles (West Ham fans would understand). 

Anyway Clinton has urged China to keep buying treasuries i.e. fund their number one customer, the US consumer. It is, after all, a symbiotic relationship. Wonder if the Chinese still buy it (pardon the pun). 

Cut the chord and the scam might be up. Then watch out as the new US Marine Corp, the 59th Airborne printing presses, try to inflate China and Japan's foreign currency 'reserves' to kingdom come. 

Popcorn anyone? 

*From Marketwatch: *Clinton urges China to keep buying U.S. debt
Reports: On first state visit, Clinton highlights U.S.-China interdependence
By MarketWatch
Last update: 4:29 p.m. EST Feb. 22, 2009Comments: 129SAN FRANCISCO (MarketWatch) -- Secretary of State Hillary Clinton wrapped up a state visit to China Sunday by urging her hosts to continue to invest in U.S. Treasury instruments and underscoring the two countries' interdependence, according to published reports.


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## Bushman

So stop buying them and let this market correct Wen Jiabao. 

I read somewhere that the US has to sell $60b of treasuries a day to fund the stimulus package. Big bickies. Who buys them if China scales back and at what yield? What then for the bail out? 

Watching with interest.

The Age: 
China seeks assurances on US debtMarch 13, 2009 - 4:35PM Page 1 of 2 Single page view

China, the US government's largest creditor, is ''worried'' about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

''We have lent a huge amount of money to the United States,'' Wen said at a press briefing in Beijing today after the annual meeting of the legislature. ''Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets.''


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## sinner

Bushman said:


> So stop buying them and let this market correct Wen Jiabao.
> 
> I read somewhere that the US has to sell $60b of treasuries a day to fund the stimulus package. Big bickies. Who buys them if China scales back and at what yield? What then for the bail out?
> 
> Watching with interest.
> 
> The Age:
> China seeks assurances on US debtMarch 13, 2009 - 4:35PM Page 1 of 2 Single page view
> 
> China, the US government's largest creditor, is ''worried'' about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.
> 
> ''We have lent a huge amount of money to the United States,'' Wen said at a press briefing in Beijing today after the annual meeting of the legislature. ''Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honor its promises and to guarantee the safety of China's assets.''




The weekly auction is currently $60bn *additional* bonds on what was already being auctioned, not per day.

There is a pool of bidders, and I am pretty sure bidding is compulsory to be part of the pool.

http://www.federalreserve.gov/monetarypolicy/taf.htm

Results of the latest auction

http://www.federalreserve.gov/monetarypolicy/20090310b.htm

Bid/cover ratio 0.79

From wikipedia



> The higher the ratio, the higher the demand. A ratio above 2.0 indicates a successful auction comprised of aggressive bids. A low ratio is an indication of a disappointing auction, marked by a wide bid-ask spread.


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## Bushman

sinner said:


> The weekly auction is currently $60bn *additional* bonds on what was already being auctioned, not per day.
> 
> There is a pool of bidders, and I am pretty sure bidding is compulsory to be part of the pool.
> 
> http://www.federalreserve.gov/monetarypolicy/taf.htm
> 
> Results of the latest auction
> 
> http://www.federalreserve.gov/monetarypolicy/20090310b.htm
> 
> Bid/cover ratio 0.79
> 
> From wikipedia




Cheers for that. 

$60b a day - must've be a case of Chinese whispers?


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## Bushman

I think this author is better than most. Here is an interesting synopsis on the China:US arm wrestle.

As an aside, Peter Navarro is also long Dupont and GE (which he terms a 'call option'). 

*'China Embarrasses the United States *

With China holding about $2 trillion of American assets, they should be rightly concerned about the value of those assets. It was embarrassing for the United States, nonetheless, for the Chinese Premier Wen Jiabao to publicly question the solvency of the US government. That is precisely the kind of embarrassment the US is likely going to have to get used to until our government gets off its knees and stops begging for Chinese money to pay for its budget and trade deficits.

In many ways, however, it is a delicious dilemma that the United States now puts China in. If China refuses to keep buying our bonds, the value of the dollar will plunge, and so, too, will the value of China's foreign reserves held in dollars. 

On the other hand, if China keeps buying our debt to prop up the dollar, it faces a strong likelihood that with so much fiscal stimulus and easy money coursing through the US system, inflation is all but inevitable. That, too, will ultimately devalue the dollar and therefore Chinese foreign reserves. So, for the Chinese, the question is whether to cut and run now or hold on and be scalped later. Of course, the problem with the United States getting the last laugh on the Chinese is that it's predicated on turning our currency into worthless paper. Stay tuned!'

From the following on-line article: 
www.financialsense.com/editorials/navarro/2009/0316.html


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## sinner

Hi guys,

Yes yes this is the same thing everyone has commented on.

I would like to raise a quick point.

The USD has been falling slowly in value for years now (thanks to long everything/short USD plays) and the Chinese were holding one of the worlds largest USD longs when it looked more like continued long-term devaluation and they still held and added to it.

The financial crisis has wiped out all their losses since 2005 or something and very nice gains on anything they bought as recently since 2006ish! They are now doing what any big player does and sells slowly into this strength.

Do you see my point? 

They are not worried about the devaluation of their USD 2tr holdings through inflation or debt default. 
They are more worried the US will beat them to the punch and devalue the USD significantly before they can devalue their currency against the USD (or otherwise wipe out any devaluations they make)!

Which is why they will keep eating the debt for as long as they can.


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## juw177

Guys you should not associate treasury yield blow out with the USD crashing and gold prices rising. Because there is a good chance the opposite will happen. USD will sky rocket as USD debts need to be quickly repaid in the high interest rate environment. Gold will become worthless because it has no real utility value.


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## sinner

Agreed, except for the last sentence.


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## Uncle Festivus

juw177 said:


> Guys you should not associate treasury yield blow out with the USD crashing and gold prices rising. Because there is a good chance the opposite will happen. USD will sky rocket as USD debts need to be quickly repaid in the high interest rate environment. Gold will become worthless because it has no real utility value.





Maybe, but gold is real & physical & not an arbitrary _limitless_ creation which relies on trust between the counterparties, the emphasis being on *limitless* as in Great Britain printing the stuff already!

You could get to the point where even a high interest rate will not be enough to entice creditors to lend the US money if there is the possibility of not getting any back? So you get rates going up but the currency going down at the same time? Latest reports suggest there is a net outflow now out of US instruments - last one out turn the lights off 

Parabolic debt is unsustainable - the outcome is inevitable, only the timing is unknown..........


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## Bushman

LOL; never bet against the US Treasury in the fight against 'evil' deflation? Might have to wait a bit longer now but it is a bit like the Kremlin buying roubles at the moment. Isn't it, isn't it? *Takes his bat and ball and goes fishing.*

Quote that comes to mind: 'reports of my death have been greatly exaggerated'. Lol 

*From Marketwatch:*

BOND REPORT
Treasurys skyrocket as Fed set to buy U.S. debt
Yields reverse all of 2009's climb
By Deborah Levine, MarketWatch
Last update: 3:45 p.m. EDT March 18, 2009Comments: 51NEW YORK (MarketWatch) -- Treasury prices soared Wednesday, sending yields plummeting by the largest amount since 1987 after the Federal Reserve surprised bond investors by saying it would buy $300 billion in longer-term Treasury securities over the next six months.
Yields on the benchmark 10-year note , which move in the opposite direction from their prices, declined 50 basis points to 2.52%, the biggest drop since the stock market crashed in October 1987.


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## sinner

Hi Bushman,

I predicted massive bond strength over a week ago in the gold thread by comparing 30y yield and gold price decline.

If it's ok with you I will steal your posted article to paste there for the purposes of unseemly gloating


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## Bushman

sinner said:


> Hi Bushman,
> 
> I predicted massive bond strength over a week ago in the gold thread by comparing 30y yield and gold price decline.
> 
> If it's ok with you I will steal your posted article to paste there for the purposes of unseemly gloating




Go for it my learned friend - give those militia men hell; lol!!


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## sinner

Gold is up, yields should price this in soon.

Here is Yves Smith, a must read for anyone in or interested in the bond market.

http://www.nakedcapitalism.com/2009/03/on-feds-shock-and-awe.html

Comes with all the good numbers and inside scoop.

I will include this snippet which she has quoted from the *"Report to the Secretary of the Treasury from the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association"* (link included inside the blog post)



> The net supply of Treasurys in 2009 and 2010 combined seems likely to total more than $3 trillion and could climb as high as $4 trillion. The Congressional Budget Office (CBO) estimates the 2009 Federal budget deficit to be $1.2 trillion. The consensus of private sector analysts is similar to that figure. Yet, neither the CBO estimate nor the private consensus reflect fully the funding needs associated with the Obama Administration's fiscal stimulus plans, the implementation of TARP (or another TARP-like program), or the rumored creation of a bad/aggregator bank to help deal with the underperforming assets weighing down financial institutions. Some of the funding of these government programs will spill over into 2010, a year in which the "core" budget position also will be weak according to mainstream expectations for economic performance.
> 
> Actual and potential funding needs for financial sector stabilization programs already announced are considerable. Guarantees made on select assets of systemically critical financial institutions could require Treasury to raise hundreds of billions of dollars in the event that these assets continue to deteriorate. Similarly, guarantees made by the FDIC on select bank-issued debt could catapult government borrowing needs further should the issuing bank(s) default on its FDIC-insured paper. Any additional guarantees on future losses to assets held by financial institutions would further increase net borrowing needs by Treasury. The size of any such borrowing would hinge on the type and size of assets backstopped.
> 
> The expansion in quasi-government paper contributes to the risk of market saturation. Banks have issued nearly $150 billion in FDIC-backed paper since the programs introduction. Spreads on this paper have been narrowing over time with the latest deal, paper offered by Citi, pricing just 30 basis points over Libor. Real money investors have purchased the bulk of this paper in an attempt to pick up yield over Treasurys while not taking on additional credit risk. In some respects, this paper has replaced GSE debt as the instrument of choice for real money investors looking for modestly higher yielding, quasi-government debt.


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## sinner

> "Foreign demand for long-term Treasuries has disappeared over the last few months," writes Brad Setser - an ex-US Treasury and IMF official, former economist for Nouriel Roubini's doom-and-gloom funsters at RGE Monitor, and a visiting or associate fellow pretty much everywhere worth having deep thoughts on big subjects.
> 
> Studying the latest official data (released Monday) in his blog for the Council on Foreign Affairs, "It is striking that for all the talk of safe haven flows to the US, foreign demand for all long-term US bonds has effectively disappeared," he explains.
> 
> In particular, "Over the past three months, almost all the growth in China's Treasury portfolio has come from its rapidly growing holdings of short-term bills, not from purchases of longer-term notes...and it is also still selling [mortgage] Agency bonds."
> 
> All told, China continued to buy US Treasury debt; it is "the only option" for China, Russia and everyone else at this stage of the game, as Luo Ping wailed to the FT last month. But of the $12.2 billion China purchased in January, fully 95% were short-term bills. "Russia also, interestingly, added to its holdings of short-term Treasury bills," Setser says.
> 
> And then, with the latest Treasury fund-flow data revealed...BOOM! The Federal Reserve prints $300bn to buy 30-year US debt, plus another $750bn to buy mortgage-agency bonds.




A snippet by Adrian Ash.


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## Bushman

May 2009!


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## MRC & Co

Bushman said:


> May 2009!




Reality has set in hey.

Now we have a falling USD, rising equity markets and rising gold.  WTF?  

Gold becoming a pure USD hedge it appears, with a move from financial assets (bonds), into hard assets (metals, energy).


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## Bushman

MRC & Co said:


> Now we have a falling USD, rising equity markets and rising gold.  WTF?
> 
> Gold becoming a pure USD hedge it appears, with a move from financial assets (bonds), into hard assets (metals, energy).




The drums are now beating well and truely for USD inflation - treasuries tell us that, bonds tell us that, commodities tell us that and gold tells us that. 

US has to inflate itself out of this banking mess. It is that or it is 'change the game' and that ain't in the Americans best interests (the game being set up for the US to live of the fat of the land). At least we no longer have to hear tired comparisons to the Great Depression anymore. 

PS: thank god Barca won the Champions League hey. What a great team. Iniesta for FIFA Player of the Year next year.


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## lookout

I think it's a mistake to look at short term market movements and speculative oil/metals bubbles and conclude that inflation is dominant. Massive deflationary forces are still with us: rising debt, rising interest payments, rising debt default, falling real estate prices and the mountain of US mortgage resets still to come.

IMHO, it's too early to conclude that we will avoid a great depression experience.


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## Bushman

lookout said:


> IMHO, it's too early to conclude that we will avoid a great depression experience.




Hard to pick a turning point that's for sure. I look at credit spreads as that's what brough on the 'great deleverage'. Showing 'green shoots' (if you look at LIBOR etc) but still a way to go. 

If credit does not get out to enterprises that need to refinance then that spells further fuel to the deleverage-unemployment symbiotic relationship and that could then dip us into depression territory. But that would not necessarily be a 'great depression' and the risk of this decreases by the 'bail out' package. Hence the longer-term forecasts start predicting USD-inflation. 

LOL; all I know is it is an interesting time to be an observer and participant in capital markets.


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## MRC & Co

Bushman said:


> If credit does not get out to enterprises that need to refinance then that spells further fuel to the deleverage-unemployment symbiotic relationship and that could then dip us into depression territory. But that would not necessarily be a 'great depression' and the risk of this decreases by the 'bail out' package. Hence the longer-term forecasts start predicting USD-inflation.




Completely agree with you Bush.

This bailout is effectively transfering debt from the consumer and private sector and into the hands of the Government (who we could say are ultimately the same difference).

However, the Government has the ability to inflate their way out of the problem.  A global recession and low interest rates, in addition to US inflation, would actually decrease their debt.  Add in a tanking USD and you could gain some kind of trade surplus down the tack.  

For now, the big problem is IMO the current meeting with Tim and the Chinese.  He needs to get them to keep their US bonds/treasuries and at the very least, hedge their USD exposure.  This will allow yields to remain low, and encourage investment in real assets, consumption and production.  

IF this meeting breaks down, you may just have a Barcelona style triumph Bush, with you being the MVP like Iniesta, as Treasuries and the USD will probably take a mammoth beating.

Just my opinion and probably plenty of mistakes.


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## MRC & Co

Looks like yesterday confimed the meetings went 'well'.  

China buying into Morgan Stanley with billions and their other US aquisitions (HUMMER etc) are a big positive for the USD and faith in US Treasuries and QE.  

A rally from here in both USD and Treasuries, before an eventual resumption of the downtrend IMO.


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## GumbyLearner

http://www.businessinsider.com/chinese-students-laugh-at-tim-geithner-2009-6

*Chinese Students Laugh At Tim Geithner*

In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: "Chinese assets are very safe."  *The comment provoked loud laughter from the audience of students.*


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## Bushman

GumbyLearner said:


> *The comment provoked loud laughter from the audience of students.*




...who then went and told their industrialist fathers to get out there and buy good 'ol Aussie hard assets.


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## MRC & Co

Still short those 30 years Bush?  10 year auction last night and it went TERRIBLE I would say.  Can't imagine 30 years will be any better (tonight right?).


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## MRC & Co

MRC & Co said:


> Still short those 30 years Bush?  10 year auction last night and it went TERRIBLE I would say.  Can't imagine 30 years will be any better (tonight right?).




Quickly on the 10 year auction.  Bid/cover ratio at 2.62 so pretty good, but: 

_10-Year Treasury Note Auction Result Is In

And judging by the market reaction, it is not good. Both stock market and bond market are sinking deeper.

I frankly don't know what the traders were expecting, for them to get disappointed like this. The key numbers of the auction is posted in the right-hand column, next to this post. (Here's the original announcement.)

Foreign participation was slightly better than the last auction, and bid to cover ratio is also higher than the last. What spooked the traders may be the yield.

Over 46% of the auction was allotted at the high yield at 3.99%.

In the last auction, only 22% of the auction was allotted at the high yield. Right before the auction result announcement, 10-year note yield was 3.94%.

Higher foreign participation demanding the higher yield for the risk they are taking.... Hmmm, it looks like bond vigilantes are intensifying their attack._

http://ex-skf.blogspot.com/2009/06/10-year-treasury-note-auction-result-is.html


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## MRC & Co

Does this positive 30 year auction market a turning point over the medium-term or simply better fills to get short?


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## Bushman

MRC & Co said:


> Does this positive 30 year auction market a turning point over the medium-term or simply better fills to get short?




Turning point barring any more financial black swans IMO.


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## sitk

Is there any way for Australian investors to short US Treasuries directly? The US-traded ETF for 20+ Year Treasuries (TLT) has been impossible to short (no stocks available to borrow, even for US retail investors). CFD's and options exist, but they are short term (less than 1 year essentially) and this short Treaury play may take several years to play out. Also rules out UltraShort Treasury ETFs like TBT, due to their inability to track long term trends (they are essentially day 2x shorts only).

I personally think this play will be more profitable than a gold or commodities play in the long term, so I was looking for any way to directly access it as an Australian retail investor.


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## MRC & Co

Bushman said:


> Turning point barring any more financial black swans IMO.




Nice!  The US CPI figures are a good boost for the trend too.   

Sitk, that is the only ETF I know of to short US Tresuries on the long end of the curve, do you have any trouble now there is a rally in the US bond markets?  

What do you mean by this part:  _"Also rules out UltraShort Treasury ETFs like TBT, due to their inability to track long term trends (they are essentially day 2x shorts only)."_

Can't you just use the ETF and hold onto it for several years?  What is the dau 2x shorts only part?


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## sitk

It's a well known fact in finance that leveraged (funds that promise to follow an index at double/triple etc. of the movement of the actual index) funds cannot track any index or other measure performance in the long term:

Please take a look at this article for an explanation, please look at the Seeking Alpha article entitled "Long Term Investors Should Avoid Leveraged ETFs" (I still have too few posts to be allowed to post links, sorry)


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## matty2.0

sitk said:


> It's a well known fact in finance that leveraged (funds that promise to follow an index at double/triple etc. of the movement of the actual index) funds cannot track any index or other measure performance in the long term:
> 
> Please take a look at this article for an explanation, please look at the Seeking Alpha article entitled "Long Term Investors Should Avoid Leveraged ETFs" (I still have too few posts to be allowed to post links, sorry)




Correct. It has to do with the compounding effect. Whilst an index can move down -10% and then move up 10% with ease, a leveraged ETF cannot since the capital base has changed. If it goes down consistently then the etf will never track the index in a like-for-like fashion.


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## Bushman

I like the title of the article - 'Feeding the Beast'. 

Lets see howe this record auction goes on the back of the 'green shoots'. 

http://www.marketwatch.com/story/tr...a-record-amount-of-debt-2009-08-05?link=kiosk


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## MRC & Co

The link wouldn' load up on my computer bush 

What does it moreorless say?

More big auctions I guess........they seem never ending.........though Japan can't be in any better state...............


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## Timmy

MRC & Co said:


> The link wouldn' load up on my computer bush
> 
> What does it moreorless say?
> 
> More big auctions I guess........they seem never ending.........though Japan can't be in any better state...............



MRC&Co - the text cut and pasted into document, attached - open with Word, Open Office, or Google Doc.  It is in Word format at present.


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## MRC & Co

Thx Timmy.  Pretty standard stuff.  

Think if we get this equity pullback, bonds will get a risk averse bid anyways.  

Reckon a short JGBs is a better play than USTs at this point.  Perhaps a spread (after just unwinding a Bund-UST spread).......


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## Naked shorts

MRC & Co said:


> Think if we get this equity pullback, bonds will get a risk averse bid anyways.





I'm not too sure about this, its been said there is still plenty of money sitting on the sidelines in treasuries (just look at where they are now compared to before the crisis) and on any pull back all these funds will begin selling their treasury's and start buying into equities. This, imo, is a divergence that should be watched for.


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## Bushman

US 10-yr bond yields are back below 2.5%, nearing the record lows of the GFC. 

So what do we think - are bonds are in bubble territory given the state of the US balance sheet or not? 

Bubble or not, it as an almighty flight to a safe haven as investors fret about government debt default and the 'double dip' implications of this (see the Ireland downgrade over night). 

For me, I am tipping upwards pressure to be placed on yields in 2011-2012 as the US government has another crack at reflating the US economy via quantative easing. 

Market Snapshot (from  Morgan Stanley Smith Barney):

•	S&P500 down 1.5% to 1052
•	Oil down 2.1% to $71.20/bbl
•	Gold up 0.3% to $1230/oz
*•	US 10yr bond yield down 11bp to 2.49%*•	AUD/USD at 88.2c


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## MRC & Co

All aboard.

About 1000 other reasons to be short USTs right now along with other crosses to trade on fallout implications.........!  

Unless the words, "we are going into QE2" come out of Bernankes mouth at Jackson hole, a lot of sneaky punters are looking for some UST shakeout!  Just look at other long positioning IMM data, safe haven flows and yield differential sensitive crosses to figure out the rest!

If you don't understand the above, you shouldn't be trading this!


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## sinner

MRC & Co said:


> All aboard.
> 
> About 1000 other reasons to be short USTs right now along with other crosses to trade on fallout implications.........!
> 
> Unless the words, "we are going into QE2" come out of Bernankes mouth at Jackson hole, a lot of sneaky punters are looking for some UST shakeout!  Just look at other long positioning IMM data, safe haven flows and yield differential sensitive crosses to figure out the rest!
> 
> If you don't understand the above, you shouldn't be trading this!








Morgan Stanley and other bigdogs down 30% on curve steepeners and here we have one trying to pick the top on USTs. Who would want to be in the market the day such words come out of Bernanke?

Short stocks short bonds seems like the only spread with a good risk/reward setup. Even then, why wouldn't you short Gilts and the FTSE Financials where the fundamental picture is so much worse. Why not just buy a ****-load of USDJPY on low leverage and let it sit there for the same duration? Hell, why not short the Aussie 10 year or even one of those US Coroporate/Muni bond etfs? If there is a spike in US yields you can bet your bubba that all of these trades will run a better profit.

You are advocating shorting in a timeframe when the Fed is actively in the market POMO 3 days a week buying what you are trying to short. The "sneaky punters" I know are making money *right now* front-running the POMO, not trying to fight it.

Has the market really become so opportunity poor that this actually seems like a good trade? You are your own trader MRC, I am not telling you how to trade and obviously I think you are a smart guy so please don't be offended. I am just a little bit incredulous at your post.

As I said way back at the start of this thread. Wake me up when the deleveraging stops.


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## MRC & Co

The market is definately not opportunity poor, not for me!  Infact there have been hundreds this last couple wks!

I know Bernanke is speaking, who would want to be in the market when he speaks?  I would!!!!!  Before it infact.

Short USTs, short stocks, absolutely a good spread!  

Sorry, can't explain all the reasoning, see S&P thread.  

Each to his own, just remember, of the last major moves, my team picked the exact top in the S&P, the exact bottom in the EUR, the exact top in this leg of the S&P move, and now I'm calling a top in the coming 2 days in USTs, bottom in both USDJPY, USDCHF.  I never gloat, a few of the bigger guys here have made money on these calls, just pointing to an ability to beat the market on turns more often than not.  If I'm wrong, it will hurt my account, but so be it.


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## sinner

MRC & Co said:


> The market is definately not opportunity poor, not for me!  Infact there have been hundreds this last couple wks!




So then I must assume this opportunity stands out above the others to you.



> I know Bernanke is speaking, who would want to be in the market when he speaks?  I would!!!!!  Before it infact.




Ok I get the picture, you are obviously not concerned about a lock-limit market of any sort.



> Sorry, can't explain all the reasoning, see S&P thread.
> 
> Each to his own, just remember, of the last major moves, my team picked the exact top in the S&P, the exact bottom in the EUR, the exact top in this leg of the S&P move, and now I'm calling a top in the coming 2 days in USTs, bottom in both USDJPY, USDCHF.  I never gloat, a few of the bigger guys here have made money on these calls, just pointing to an ability to beat the market on turns more often than not.  If I'm wrong, it will hurt my account, but so be it.




Hey mate, a few points, I am not asking for the reasoning on a particular short bond trade. In fact I wrote on August 12 (on ForexFactory) that this particular rush into Treasuries would be a precursor to a stampede for the exits. The fiscal situation in the US speaks for itself. *So I get where you are coming from*. Was just wondering why you picked this particular asset class (US Treasuries) which has a bid from the Fed, versus say, Gilts or US Corporate Yield tickers, which will both certainly follow Treasuries if your forecasted yield spike eventuates and provide a much better reward for the exact same risk considering the fundamentals of the Gilt market, or JGB market, etc. 

I personally set my GBPUSD sentiment to 6/12-month strong bearish at the end of July, before even John Taylor of FX Concepts was calling for the top in EURUSD. I forecast the GBPUSD decline and bottom price on ForexFactory in early Feb 2010, made a mint trading it on the way down. So you can see I am not trying to disparage your directional forecast, nor your ability to profit from it. As I said previously, just a bit weirded that you picked USTs over the many more fundamentally juicy instruments out there if you believe the bond bid will fail. Certainly Brazil and Australia would be the first two sacrificial victims of a bond market yield spike in my opinion.


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## MRC & Co

Ok, I get you.

As for the answer to your Qs, always trade the source for the move (in this case, USTs IMO).  

Been humped too many times trying to go for the higher beta trades on different instruments.  I still do sometimes, but I always ensure I get it on the source at least equally.  

Anyway, tonight is the night me thinks, we will see.


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## MRC & Co

Well there is that one who tried to pick the top in USTs while the Fed is active in the market and appears I got it!  Curve steepeners anyone?  That's what I call sneaky punters!  Winners are grinners 

You get the most meat out of the turns are they are not exactly hard to predict if you get inside the mind of the market and with that, since you know what they are viewing, you can work out what could be the possible inflection point, here Bernanke, under international pressure, domestic pressure inside his own board, on the opening day of Jackson Hole, didn't have much opportunity to do anything BUT disappoint a hawkish market in what turned his speech into somewhat of a 'key note'.  Bullard beforehand just told us what Bernanke was going to, without most of the market even listening to him.......!


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## sinner

MRC & Co said:


> Well there is that one who tried to pick the top in USTs while the Fed is active in the market and appears I got it!  Curve steepeners anyone?  That's what I call sneaky punters!  Winners are grinners




Gee man, I thought you never gloat? 

Congrats. As stated earlier, I never disagreed with the premise of the trade, just saw better R:R opportunities around. Why hit the Fed bid when you can take some offers along with BoJ? 



> Why not just buy a ****-load of USDJPY on low leverage and let it sit there for the same duration?




:


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## Bushman

booyakasha...

Yields on 10-year notes /quotes/comstock/31*!ust10y (UST10Y 2.65, 0.00, 0.00%) which move inversely to prices, rose 17 basis points to 2.65%, the biggest increase since June. A basis point is 0.01%.


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## Mr Z

*Looks like...*

we have a good candidate for a bottom in yields!


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## sinner

So the proposed bottom in yields did not hold for longer than a month.

I'm not as good as MRC and his team to try and pick an exact bottom or bottom of a leg or whatever, especially in a Fed dominated market.

As I appreciate his thoughts, wondered why we didn't hear from MRC as the yield lows in 10 year were broken, does he think the more recent lows aren't the low in yields anymore?

My thoughts are that recent macro events could put a floor under all sorts of debt yield, specifically todays news and what I'm sure will be plenty more of the same to come:
http://www.marketwatch.com/story/an...den-of-losses-2010-10-21?reflink=MW_news_stmp

The dreaded bondholders haircut. 

Examining the yield curve with a 50 day window shows flattening of the short end of the curve and steepening the long end. ZH has reams of stuff on this for interested parties.


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## MRC & Co

Didn't hear from me because I rarely post opinions, only when I get time.

As for yields and USTs, I would rather pick turns, right now we are in no mans land, no idea where they are going and won't speculate on it at this point in time, other games to play.

Only possible play on yields I think (only a personal opinion) is that the language on the statement may be made to try and push out any notion of a rate rise far further out the curve, so may see the belly flatten......that said, markets don't buy talk lately and may push the Fed into action.


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## sinner

sinner said:


> My thoughts are that recent macro events could put a floor under all sorts of debt yield, specifically todays news and what I'm sure will be plenty more of the same to come:
> http://www.marketwatch.com/story/an...den-of-losses-2010-10-21?reflink=MW_news_stmp
> 
> The dreaded bondholders haircut.
> 
> Examining the yield curve with a 50 day window shows flattening of the short end of the curve and steepening the long end. ZH has reams of stuff on this for interested parties.
> 
> View attachment 39315




Bondholders seriously spooked last night after Moodys warning of downgrade for US debt re Bush tax cuts ending.

Without a doubt, the Anglo Irish story above was the catalyst for a lot of debt products to put a bottom in on yields. There has been serious pain in the muni market, and HY debts are getting a lot of talk.



P.S:

Did anyone notice the inversion which happened on the Aussie yield curve recently? 2 year is inverted for the next 9 months out?


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## Mr Z

sinner said:


> So the proposed bottom in yields did not hold for longer than a month.




The low for the proposed bottom week looks to have been a few points out... jeez, cut some slack will ya? I'd have not hit stops on that trade FWIW. Still lets wait and see how this continues to play out.


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## sinner

Mr Z said:


> The low for the proposed bottom week looks to have been a few points out... jeez, cut some slack will ya? I'd have not hit stops on that trade FWIW. Still lets wait and see how this continues to play out.




Hi Mr Z, a few points?

You called it on the weekly pinbar, we didn't just penetrate that low, we closed below the level on the weekly shortly after. The difference between the lows was 85bps. Hardly a few points.

Sometimes we are wrong. It's ok, fine to be wrong. I am certainly wrong a lot and don't begrudge anyone who has the guts to post their thoughts live just because it turns out wrong.

My thoughts remain as posted 22nd October. Keeping an eye action of USDJPY after NY closes and Tokyo opens. Look forward to your discussion.


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## Mr Z

You don't buy/sell yield.....!

You are talkin selling 125/6 ish to 128.... a few points!

UST Note price... look it up.



sinner said:


> Sometimes we are wrong.




YES!

Near enough to trade it so far... unless it turns around here.

FWIW... I'd take a 2% drawn down on every trade to get it established if I had the choice, I have done better but I have certainly done worse.


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## sinner

Mr Z said:


> You don't buy/sell yield.....!
> 
> You are talkin selling 125/6 ish to 128.... a few points!
> 
> UST Note price... look it up.




This is stupid. You said "we have a good candidate for a bottom in *yields*". This is to what I was referring. You want to short bonds along with MRC? Go ahead.  This thread is about yield. I am watching yields, and obviously I thought that is what you were talking about because you forgot to mention that when you said yield, you actually meant the price of a futures contract which you are trading.



> Near enough to trade it so far... unless it turns around here.
> 
> FWIW... I'd take a 2% drawn down on every trade to get it established if I had the choice, I have done better but I have certainly done worse.




Good for you. Is anyone actually interested in discussing on when does the yield on US Treasuries blow out?


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## Mr Z

I said...



Mr Z said:


> The low for the proposed bottom week looks to have been a few points out... jeez, cut some slack will ya? I'd have not hit stops on that trade FWIW. Still lets wait and see how this continues to play out.




In clear reference to trading it... price trades, yields don't. *It is not stupid...* if you wanted to play yield you buy/sell price.... It's the only thing you can do! 

You are the one that tightened up your knickers and told me in a very condescending fashion it was OK to be wrong.... all I said was I will take that amount of wrong on any trade, if this indeed is the turning point!

So if this turns out to be a top in price _, which it may not be,_ and conversely  a low in yield it then was not such a shabby call, like I said I will take a 2% draw down any day of the week. Which is all it would have been... you know, in real money... *IF* this is indeed a top.

Yield is derivative... talking bond price is talking yield.

Jeeeezzzzz.... what world do you live in? Is this like the real estate thread where talking anything that impacts price is taboo because the thread title says "price of real estate"...


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## Mr Z

sinner said:


> Good for you. Is anyone actually interested in discussing on when does the yield on US Treasuries blow out?




There you go again.... dripping with condescension!

Give me a break...!


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## sinner

Mr Z said:


> I said...
> 
> In clear reference to trading it... price trades, yields don't. *It is not stupid...* if you wanted to play yield you buy/sell price.... It's the only thing you can do!




Yield is the funding basis for everything. Some of us are not interested in the price of the bond, but what the yield on the bond is doing to other debt assets.



> Yield is derivative... talking bond price is talking yield.




Ermm... what?

Yield is not a simple function of price. 

I suggest you take the bond crash course
https://self-evident.org/?p=621


> But remember that bond traders always think in terms of yield, not price. They would never say, “I bought a $1000 30-year zero-coupon bond for $308″. They would say, “I bought a $1000 30-year zero-coupon bond at 4%.”
> 
> *That is, yield is not the output of a calculation based on price; it is the input of a calculation that determines price.* We actually start with the face value F, maturity N, and yield y, and we invert the formula above to get P:
> 
> P = F/(1+y)^N
> 
> This formula is arguably the most important in all of finance, because it captures the concept “time value of money”. It tells you how much future money is worth today. The name for this is Present Value, or just PV






> Jeeeezzzzz.... what world do you live in? Is this like the real estate thread where talking anything that impacts price is taboo because the thread title says "price of real estate"...




I live in a world where credit and therefore the time value of money is the funding basis for almost every productive venture mankind is entering into. So I am interested in yield.



> Give me a break...!




You got it.


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## Mr Z

Oh really... no I do thank you for that....

Here have an egg to suck while you are at it. :


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## Trembling Hand

Sinner your website for dummies is wrong. I've sat on a few desks with active bond traders and have never heard them quote yield that they bought/sold. Always the price.


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## Mr Z

I'd be guessing that is because they where trading a certain series at any given time so the only real variable that they can consider is price. Which at any given point in time is the only variable with in the markets control. It's not like price is going to move and not impact yield.... time decay is a known curve.


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## Trembling Hand

Mr Z said:


> I'd be guessing that is because they where trading a certain series at any given time so the only real variable that they can consider is price.




Yes of course.


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## sinner

Trembling Hand said:


> Sinner your website for dummies is wrong. I've sat on a few desks with active bond traders and have never heard them quote yield that they bought/sold. Always the price.




Hi TH,

I used to follow acrossthecurve.com before the guy stopped around this time last year due to a new job at TDS.

Check it out, http://acrossthecurve.com/

He used to post nightly market recap, always quote the yield, never the price.

Go look at bondtraderforum.com, tell me whether you see traders there quoting in price or yield.

Here is just one quick example I pulled
http://bondtraderforum.com/30-year-moving-up-t119.html

Go look at Bloomberg market recaps, tell me if they quote the price or yield.


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## Mr Z

Doesn't make what I said wrong.

Have we pee'd far enough up the wall for you yet?


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## Trembling Hand

Sinner my point is that people who actually trade Bonds talk about price when they are talking about their trades. Backing up Mr Z words about _his _trade in my experience.

I know bloomberg talk about yield so what? They are talking to retail punters. I'd expect the links you posted also are talking to the same audience.

Of course you're right though. After all you got it off the Internet. Thats always right! That is why people in piss-ant admin jobs can talk like masters of the universe after they finish their day job. I love the internet. We can all be winners

Carry on,,,


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## Mr Z

I guess if you are talking 10 year treasuries, all maturities, the only common reference point is yield because they vary across the board. If you are trading a particular series then all the other variables are known so price becomes the main issue. So yeah, I can see how it should vary depending on the context and the audience but to say there is only one valid way to discuss bond value is a bit of a stretch IMO.

Anyway... the point being, it looks like, maybe we have a turning point around here somewhere... give or take. Vague enough? LOL...

Smile guys... it's only money... and what I lose was all mine... for a while! 

Thanks TH.


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## sinner

Brian Sack spoke yesterday:

"The upward movement in longer-term interest rates in large part reflects the greater optimism among investors about the outlook for economic growth and the gains do not signal greater worry about inflation."

My reply:
Let's ask the investors, shall we?
The high in bond prices was late August. So we can look at TIP vs TLT on a 120 day relative basis (I expanded the scope to 123 days to capture the actual high close in TLT).

Obviously, inflation is exactly what investors are worried about. Hell, a long TIP short TLT trade the day QE2 was announced would have essentially a bet on the CPI that paid 14%, if I'm not mistaken?


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## IFocus

sinner said:


> Brian Sack spoke yesterday:
> 
> "The upward movement in longer-term interest rates in large part reflects the greater optimism among investors about the outlook for economic growth and the gains do not signal greater worry about inflation."
> 
> My reply:
> Let's ask the investors, shall we?
> The high in bond prices was late August. So we can look at TIP vs TLT on a 120 day relative basis (I expanded the scope to 123 days to capture the actual high close in TLT).
> 
> Obviously, inflation is exactly what investors are worried about. Hell, a long TIP short TLT trade the day QE2 was announced would have essentially a bet on the CPI that paid 14%, if I'm not mistaken?




Sinner did you take the trade?


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## sinner

IFocus said:


> Sinner did you take the trade?




Nope, not my style, just thought it was worth pointing out that Sack is audaciously bull****ting in front of obvious data.

Unless someone can point out a different reason the huge discrepancy between TIP and TLT? 

TIP has been steadily pricing in inflation since late '09 and only started to break down again during late August '10 in which lots of countries bonds made highs (yield lows).

But that break down has really not been much compared to that of non inflation protected treasuries. 

Funny how the price curve of gold and TIP doesn't look that different...


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## Bushman

Finally, the great rotation is really taking off on tapering talk. Yield curve is steepening in the US. Goldman's expecting 4% on 10-yr Treasuries by 2016. 

'The 10-year Treasury note had its yield outlook raised by Goldman Sachs on Sunday.

The investment bank hiked its expectations for the trajectory of the benchmark note, projecting yields hitting 4% by 2016, largely based on an improving U.S. economy, an anticipated winding down of the Federal Reserve’s bond-purchase program, and fewer systemic risks in the euro zone, according to Goldman’s Francesco Garzarelli.' 

Interesting that the US is tightening while Europe and England are easing. Surely the US cannot allow that to happen. So will there be an 'untaper' of the taper soon?


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## kid hustlr

What's the linkages between QE ending and the US yield curve steeping?

My understanding is generally yield curves steepen during an easing cycle as they buy the front end (short end prices in more rate cuts, back end less affected)

In this case I feel the curve has steepened as _they have sold the back more than the front._

I mean practically it makes sense, (10 year is the most liquid) but just wondering if from an economic theory perspective there is a reason why.


----------

