Bonds Tanking--ECBs Rumored to be Fed Up

[Rose21]

The TNX is soaring; looks like the game is up.

Trying to find a link to a news wire.

http://tickerforum.org/cgi-ticker/akcs- ... indnew#new

[fluffyistaken]

Yeah, it's a real slaughter: http://finance.yahoo.com/q/bc?s=BND&t=3m

[ddb]

The TNX is soaring; looks like the game is up.

Trying to find a link to a news wire.

http://tickerforum.org/cgi-ticker/akcs- ... indnew#new

My corporate bond funds CIU and CSJ are each down approximately half-a-percent on the day.

Tanking? I don't think so.

[jh]

...

[Rose21]

And no one thinks this is important? I don't even know what to say.

BTW, Tickerforum did not make this news up. They commented on it.

[Sidney]

And no one thinks this is important? I don't even know what to say.

Our near term concerns are focused on Taylor's mouse crisis. Something we can influence.

[market timer]

The fact that stocks were down almost 2% makes this selloff in bonds even more significant. 10-year yields are testing their recent highs, and I suspect we'll break through them on any strength in the market. Notice also that the dollar fell against the Euro and yen.

Certainly, it was a bad day to own Treasuries. The game is not over, though. Bonds have much further to fall.

[saurabhec]

The fact that stocks were down almost 2% makes this selloff in bonds even more significant. 10-year yields are testing their recent highs, and I suspect we'll break through them on any strength in the market. Notice also that the dollar fell against the Euro and yen.

Certainly, it was a bad day to own Treasuries.

It certainly felt like an odd day, who knows if it is information or noise. I suspect the ratings outlook revision of the UK spooked all investors across asset classes. As someone currently shunning nominal Treasuries in my portfolio, I actually can't wait for the Treasury yields to increase so that I can go back to "steady state" with my fixed income choices.

[jimdigriztn]

BTW, Tickerforum did not make this news up. They commented on it.

Rose,
I find Denninger to be excitable and over-the-top, with an outrage meter permanently set at 10. It's a bit tiring after a while.

Yet...he brings to light critical facts which other economic pundits don't even seem to be aware of, even though they are manifestly true. His points seem very solid to me, so I do take him seriously. Not to mention, his record as an economic prognosticator (http://market-ticker.org/archives/689-W ... -2009.html) is very good indeed - certainly better than the talking heads we see on the cable channels.

Jim

[Karl]

It's hard to imagine that interest rates won't go up over time. Interest is the cost of money and with how much the government is borrowing you'd sure think that should drive up the cost (interest rate), yet they are currently able to borrow so cheaply that Vanguard has a Treasury MM with a yield of only 10 basis points.

[mtl325]

The TNX is soaring; looks like the game is up.

I don't think this is the least bit shocking. Uncle Ben and tiny tim gave the government a boost and the TBT traders enough time to build big positions. If you were planning on trading 10 year notes and haven't swapped or sold you had to be living in a cave.

Inflation is still not close, the yield curve is going to continue to steepen, making banks even more profitable. (borrow short, lend long, profit on the spread).

The High yield x Investment Grade x treasury spreads will tell you a lot more than the price.

[Valuethinker]

It's hard to imagine that interest rates won't go up over time. Interest is the cost of money and with how much the government is borrowing you'd sure think that should drive up the cost (interest rate), yet they are currently able to borrow so cheaply that Vanguard has a Treasury MM with a yield of only 10 basis points.

Not if the supply is perfectly elastic.

Which it is, in a liquidity trap.

The problem is the private sector is probably, net net, still contracting its demand for credit. A product of a broken transmission chain-- a bank system labouring under past losses, and not willing to make any risky lending.

A lot of the 'debt increase' of western governments has simply been a straight swap of public debt for private debt.

Another chunk is simply the fall in government revenues that accompanies the fastest and deepest collapse in output since WWII.

The other factor hitting is that private sector prices are deflating quite rapidly across a broad spectrum (I work in the service sector, and our realized revenue per client per unit (ie price) is down c. 25-30%, and that's not untypical).

So the nominal economy is shrinking quite rapidly, and that is increasing the apparent size of the government deficit.

[market timer]

The selloff continues.

10-year: 3.40%
30-year: 4.34%

1 Euro = $1.402

[Valuethinker]

The selloff continues.

10-year: 3.40%
30-year: 4.34%

1 Euro = $1.402

It would be wild if concerns about the US situation led to a rise in the Euro.

I mean, yehh in principle, but in reality European economies are falling faster in some cases, Eastern Europe is looming out there, banks are often in bad shape.

I realize rationality and currency markets don't quite work like that, but still....

[matt]

Before reading this thread, I had no idea that bond prices could go both up and down. Thanks, everyone!

[saurabhec]

It would be wild if concerns about the US situation led to a rise in the Euro.

If rates go up shouldn't that make US Treasuries more attractive, not less to foreigners?

[mtl325]

It would be wild if concerns about the US situation led to a rise in the Euro.

If rates go up shouldn't that make US Treasuries more attractive, not less to foreigners?

Are you trying to assign logic and rationality to the movements of this market? The dollar's movement has been entirely technical in the recent rally and retracement.

Hopefully, the treasury is done with QE by allowing to 10 yr to trade up. Without QE we'll get real price determination in the corporates (IG) and what the free market thinks of risk premiums. If the unmanipulated spread between UST and IG is really ~3-500 basis points, IG is just as inflated as UST. I'd personally feel much better if the gobmint goes hands off the bond market and we see spreads come into line with the historical 150-250 bp.

Which raises my favorite question: Has there been enough of a bond market recovery to warrant a lasting equity market recovery?

[FFR1608]

It's hard to imagine that interest rates won't go up over time. Interest is the cost of money and with how much the government is borrowing you'd sure think that should drive up the cost (interest rate), yet they are currently able to borrow so cheaply that Vanguard has a Treasury MM with a yield of only 10 basis points.

Here is one way to understand why interest rates might not go up in the immediate future.

Business investment demand for money has declined 40% or more, sharply reducing our demand for money.

The supply of money will increase as business and individuals increase their savings in response to the recession.

Decrease in demand combined with increase in supply means that interest rates will not increase soon.

The good news it will be our national savings financing our bailout deficits. That is much better than letting the Chinese finance our deficits.

[market timer]

More selling.

10-year: 3.49%
30-year: 4.45%

[Valuethinker]

It would be wild if concerns about the US situation led to a rise in the Euro.

If rates go up shouldn't that make US Treasuries more attractive, not less to foreigners?

Not if markets are selling the dollar for the same reason they are selling US Treasuries or if the reason the dollar is falling is because they are selling US Treasuries.

[saurabhec]

It would be wild if concerns about the US situation led to a rise in the Euro.

If rates go up shouldn't that make US Treasuries more attractive, not less to foreigners?

Not if markets are selling the dollar for the same reason they are selling US Treasuries or if the reason the dollar is falling is because they are selling US Treasuries.

Right, but we have no reason to assume what you say above as being the likely cause of the rise in yields. While foreign governments hold a huge chunk of US Treasuries, there is no evidence that they actively trade them on a daily basis. It is equally, if not more likely that US investors started to be more averse to US Treasuries. A sustained rise in US Treasury yields is a dynamic that has built-in tension to a decline in the value of the USD.

[ddb]

It would be wild if concerns about the US situation led to a rise in the Euro.

If rates go up shouldn't that make US Treasuries more attractive, not less to foreigners?

Not if markets are selling the dollar for the same reason they are selling US Treasuries or if the reason the dollar is falling is because they are selling US Treasuries.

I'd be curious to know what the alternative investment is for those who would consider selling very large chunks of US treasuries. Presumably, foreign governments/institutions have purchased these as the safest place to park money. Until there becomes a safer alternative, I'm not too concerned.

- DDB

[preserve]

I'd be curious to know what the alternative investment is for those who would consider selling very large chunks of US treasuries. Presumably, foreign governments/institutions have purchased these as the safest place to park money. Until there becomes a safer alternative, I'm not too concerned.

- DDB

Or they could have just quit buying treasuries?

The only way the financial markets can tell Congress to quit spending money is by raising long term yields.

[bmb]

Well, boo-hoo. 10 year Treasuries are all the way up to 3.5%, it's the end of the world, run for the hills! (The 2 year is still under 1%, so never mind.)
Although there are always risk no matter what the direction of rates, a moderate rise in Treasuries, which have been abnormally depressed, is very good news. It means that confidence is returning and credit has been unfrozen.
The stock markets are up, Treasuries are down - that's the way it's supposed to work. We maybe liked it the other way around? That could be arranged if we take the advice of some to just let nature take its course. I guess people think 1% Treasury yields and a 300 S&P would be healthy.

[ddb]

I'd be curious to know what the alternative investment is for those who would consider selling very large chunks of US treasuries. Presumably, foreign governments/institutions have purchased these as the safest place to park money. Until there becomes a safer alternative, I'm not too concerned.

Or they could have just quit buying treasuries?

Okay, but where are they going to place their money instead?

[preserve]

I'd be curious to know what the alternative investment is for those who would consider selling very large chunks of US treasuries. Presumably, foreign governments/institutions have purchased these as the safest place to park money. Until there becomes a safer alternative, I'm not too concerned.

Or they could have just quit buying treasuries?

Okay, but where are they going to place their money instead?

There are multiple scenarios

1) All the rage in Asia seems to be in home grown weapons.
2) The exporting countries don't have as many dollars as they used to.
3) They are injecting money into banks instead of treasuries. Long-term yields were low when banks had low capital. We could see the inverse happening.

[muck53]

I read in the WSJ today that Americans, including private citizens, have 70% of the GDP in cash holdings, today - MMF, Bank, etc. If GDP is like 13-14 T (or used to be) and Americans themselves have 70% of that in cash, why all the concern about foreign governments buying Treasuries? Sure - supply, what 1-2 T ... okay, we have that. Why don't Americans buy their own Treasuries?

I can answer for myself. The yields are too low. The latest I Bond fixed part was almost asking if I was stupid or something (so no I didn't buy).

What yield would it take for you to buy a 10 year, and hold it to term? A 30 year? I won't be alive 30 years from now, so this is not a good investment for me, but perhaps a 10 year.

What yield do I want, before I would buy one? What yield do you want? Perhaps, the rest of the world wants that yield too?
muck53