Treasury Auction - Nobody Came: "Great T-Bill Massacre"

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Phineas J. Whoopee
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 05, 2018 1:51 pm

Doc wrote:
Thu Jul 05, 2018 1:38 pm
..
It is highly unlikely that either of these factors had anything to do with lack of interest by the Primary Dealers at Monday's auction. Whether the lack of interest as due to the Fourth of July or the World Cup will be answered shortly if the lack of interests continues for the next several weeks.
...
Why do you think Primary Dealers weren't bidding? They are required to, at every auction, pro-rata, at reasonable prices as I quoted the New York Fed upthread. If they don't they risk losing their primary dealer status.

The Primary Dealers aren't the only ones bidding, and they don't necessarily win at every auction. Objectively it's more likely that other bidders were less interested.

The Fed doesn't release a list of successful and failed bidders, but I'm pretty sure the Primary Dealers are diligent about carrying out their responsibilities. Loss of their status would be what sophisticated businesspeople call a bad thing.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Thu Jul 05, 2018 2:17 pm

Phineas J. Whoopee wrote:
Thu Jul 05, 2018 1:51 pm
Why do you think Primary Dealers weren't bidding? They are required to, at every auction, pro-rata, at reasonable prices as I quoted the New York Fed upthread. If they don't they risk losing their primary dealer status.
From Blomberg:
Perhaps it’s just a function of the auction’s timing, coming later on an off day in a holiday week when many A-list traders are probably out of the office.
And Reuters:
Perhaps some market players’ focus on the World Cup might have contributed to the tepid demand for the latest T-bill supply, analysts said.
Maybe I am impreciset in equating "Primary Dealers" with "A-list Traders" and "market players". :?:

Also the Primary Dealers may be required to participate but they could just have reduced their buy amount by the 20% or so that is the difference in the cover ratio. Maybe it wasn't the Primary Dealers that were watching the World Cup on the beach but rather the Primary Dealers customers that were missing in action.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 05, 2018 2:33 pm

Hi Doc.

I understand where you're coming from. Yes, the references that don't include the words Primary Dealers are to institutions other than the Primary Dealers. If Bloomberg or Reuters, both of which aim their news at financial services professionals, meant Primary Dealers they would have said Primary Dealers.

Yes, maybe the Primary Dealers, on average, bid for more than they're required to, and fell back to just their minimums. The New York Fed uses the words pro rata.

Now, I don't know, and haven't been able to find out, what rata they're talking about, but the system is set up such that every Treasury auction is oversubscribed. Out of the rata each Primary Dealer has a pro that's the lowest quantity they're allowed to bid for to retain their status.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Oicuryy » Thu Jul 05, 2018 3:07 pm

Results of Treasury auctions are posted on the TreasuryDirect web site.
https://treasurydirect.gov/instit/annce ... /press.htm

Results of Federal Reserve open market operations (OMO) are on the New York Fed's web site.
Permanent OMO https://www.newyorkfed.org/markets/pomo_landing.html
Temporary OMO https://apps.newyorkfed.org/markets/autorates/temp


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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by bhsince87 » Thu Jul 05, 2018 8:13 pm

Phineas J. Whoopee wrote:
Thu Jul 05, 2018 2:33 pm
Hi Doc.

I understand where you're coming from. Yes, the references that don't include the words Primary Dealers are to institutions other than the Primary Dealers. If Bloomberg or Reuters, both of which aim their news at financial services professionals, meant Primary Dealers they would have said Primary Dealers.

Yes, maybe the Primary Dealers, on average, bid for more than they're required to, and fell back to just their minimums. The New York Fed uses the words pro rata.

Now, I don't know, and haven't been able to find out, what rata they're talking about, but the system is set up such that every Treasury auction is oversubscribed. Out of the rata each Primary Dealer has a pro that's the lowest quantity they're allowed to bid for to retain their status.

PJW
PJW, If the primary dealers know that the Fed wants rates to rise, do yo think they might be nudged to raise their bids a bit?
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by whodidntante » Thu Jul 05, 2018 8:16 pm

This thread has been informative for me, since I don't know anything about bonds.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 05, 2018 9:03 pm

Regarding the Fed being the lender of last resort to banks, just googling around the Fed did some pretty unprecedented things during the 2008-2009 financial crisis.
John Weinberg, Federal Reserve Bank of Richmond said:

Financial distress at several large financial firms in 2008 played a prominent role in the 2007-09 financial crisis. Several of these institutions were not commercial banks and therefore not the types of institutions to which the Federal Reserve typically provides support. Nonetheless, the Federal Reserve intervened to support some of these institutions, motivated by a desire to avert disorderly failures that could have harmed the US economy more broadly. Bear Stearns, an investment bank, was acquired by JPMorgan Chase (JPMC) in the spring of 2008 in a transaction that was assisted by the Federal Reserve Bank of New York (FRBNY). Lehman Brothers, an investment bank, filed for bankruptcy on September 15, 2008. The next day, AIG, a large insurance and financial services company received support from the FRBNY. In addition, Citigroup and Bank of America, which are commercial banking institutions, each sought specific support programs protecting against losses on specific asset pools.
The afternoon of September 16, a prominent money market fund announced that it would not be able to continue to redeem its shares at the usual price of $1 per share because of losses on Lehman commercial paper that it held. Following that announcement, many investors withdrew money from money market funds that were not restricted by charter to holding only US Treasury and federal agency obligations. Investor withdrawals caused many such funds to sell some of their holdings of commercial paper. Some investors transferred balances to so-called government-only funds, but some left money market funds altogether. To stem these outflows, the Department of the Treasury subsequently announced that it would establish a temporary guarantee program for US money market funds and the Federal Reserve established the Asset-backed Commercial Paper Money Market Mutual Fund Liquidity Facility.
When Bank of America, another large US banking organization, acquired Merrill Lynch in late 2008, it assumed a large portfolio of mortgage-related assets. On January 16, 2009 the Treasury, the Federal Reserve, and the FDIC jointly announced that the US government would provide support to Bank of America.
A couple of points here. First, the Fed was in fact a lender of last resort to AIG, a big insurance company. It facilitated the merger of Bear Stearns and Merrill Lynch with large commercial banks. The Fed also played a big role in slapping temporary guarantees on Money Market Funds. The Fed was lending to more than just commercial banks. Second, notice how closely the Treasury, the Fed, and the FDIC worked together in the crisis. Though the Fed and the Treasury are different agencies with different missions, my comments that for simplicity's sake that the Fed and Treasury could be viewed as one institution when trying to understand the workings of the monetary system were not far off the mark.

Here is the link:

https://www.federalreservehistory.org/e ... stitutions
Last edited by nedsaid on Thu Jul 05, 2018 9:23 pm, edited 1 time in total.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by triceratop » Thu Jul 05, 2018 9:03 pm

bhsince87 wrote:
Thu Jul 05, 2018 8:13 pm
Phineas J. Whoopee wrote:
Thu Jul 05, 2018 2:33 pm
Hi Doc.

I understand where you're coming from. Yes, the references that don't include the words Primary Dealers are to institutions other than the Primary Dealers. If Bloomberg or Reuters, both of which aim their news at financial services professionals, meant Primary Dealers they would have said Primary Dealers.

Yes, maybe the Primary Dealers, on average, bid for more than they're required to, and fell back to just their minimums. The New York Fed uses the words pro rata.

Now, I don't know, and haven't been able to find out, what rata they're talking about, but the system is set up such that every Treasury auction is oversubscribed. Out of the rata each Primary Dealer has a pro that's the lowest quantity they're allowed to bid for to retain their status.

PJW
PJW, If the primary dealers know that the Fed wants rates to rise, do yo think they might be nudged to raise their bids a bit?
The auction process begins with the announcement of the auction, not with the actual auction itself. This is important because there is price discovery that occurs. To quote a report by the Federal Reserve Bank of New York:
The Treasury auction process begins with an announcement
by the Treasury that it will soon auction a specified quantity
of a particular security. For example, at 11 a.m. on Monday,
August 23, 2004, the Treasury announced that it would auction
$24 billion of new two-year notes on August 25 for delivery
and payment on Tuesday, August 31. The announcement did
not specify a coupon rate for the notes. As explained below,
the auction would determine the coupon rate as well as the
issue price of the notes. Note, however, that the Treasury
sometimes “reopens” a security by selling additional
amounts of an outstanding issue. In the case of a note or
TIPS reopening, the coupon rate on the new securities is
identical to that on the outstanding securities and is not
determined in the auction process

Immediately following the announcement of a forthcom-
ing auction, dealers and other market participants begin to
trade the new security on a when-issued basis. Secondary
market transactions in outstanding Treasury securities typi-
cally settle on the business day after the trade date, when
sellers deliver securities to buyers and receive payment.
When-issued transactions, by contrast, settle on the issue
date of the new security (which can be as much as a week or
more after a trade is negotiated) because the security is not
available for delivery at any earlier date.

When-issued trading enables market participants to con-
tract for the purchase and sale of a new security before the
security has been auctioned. This type of trading is important
because public dissemination of the yield at which a new note
is trading, or the discount rate at which a new bill is trading,
provides valuable information about the market’s appraisal of
the prospective value of the security. The Joint Report on the
Government Securities Market prepared by the U.S.
Department of the Treasury, the Securities and Exchange
Commission, and the Board of Governors of the Federal
Reserve System pointed out that when-issued trading
“reduces uncertainties surrounding Treasury auctions by
serving as a price discovery mechanism.Potential ...bidders
look to when-issued trading levels as a market gauge of demand
in determining how to bid at an auction” (1992, p. A-6).
When-issued trading thus contributes to the Treasury’s goal
of promoting competitive auctions by enhancing market
transparency.

A particularly important part of pre-auction when-issued
trading involves purchases by private investors from dealers.
The purchases have two significant distributional effects.
First, they facilitate distribution of a new issue ahead of its
auction. The Joint Report noted that when-issued trading
“benefits the Treasury by ...stretching out the actual distribu-
tion period for each issue,...allowing the market more time
to absorb large issues without disruption” (p. 9). Second,
when-issued sales by dealers to private investors leave the
dealers with a need to make offsetting purchases in the auc-
tion, concentrating bidding interest in the hands of market
participants that have a substantial financial incentive to
identify correctly the price that balances demand with supply.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 05, 2018 9:20 pm

Here is more:
John Weinberg, Federal Reserve Bank of Richmond said:

Since its inception, the Federal Reserve has been authorized to lend to banks. At first, access to the Federal Reserve Banks’ standard lending facility―known as the “discount window”―was limited to member banks, and collateral was limited to certain commercial paper―essentially short-term business and agricultural loans—and US Treasury securities. Later, during the strained credit conditions of the Great Depression, eligible collateral was broadened to include any asset acceptable to the lending Federal Reserve Bank. In addition, in 1932, Congress expanded the Fed’s lending authority beyond banks by adding Section 13(3) to the Federal Reserve Act, which permitted the Board of Governors, in “unusual and exigent circumstances” and under other conditions, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations.
The Fed also was a lender of last resort to other Central Banks around the world.
In addition to the strains in US funding markets, short-term dollar funding markets abroad also came under pressure. Many foreign banks were facing problems in raising dollars to fund their investments in dollar-denominated assets. To improve their access to dollar funding, the Federal Reserve established temporary central bank liquidity swap lines (also referred to as reciprocal currency arrangements) with a number of foreign central banks.

The FOMC authorized temporary dollar liquidity swap arrangements with fourteen foreign central banks between December 12, 2007, and October 29, 2008. The arrangements expired on February 1, 2010. In May 2010, in response to the reemergence of strains in short-term dollar funding markets abroad, the FOMC reauthorized dollar liquidity swap lines with five foreign central banks. At the peak of utilization of the dollar liquidity swaps, $586 billion was outstanding on December 4, 2008.
Helicopter Ben was a busy man, figuratively dropping money out of helicopters not only in the US but to a lesser extent outside the United States. The Federal Reserve established lines of credit with other Central Banks but never used them.

Credit was extended to primary dealers.
In March 2008, in response to liquidity pressures faced by primary dealers, the Federal Reserve established the Term Securities Lending Facility (TSLF) as a means of addressing the funding pressures faced by primary dealers. Under this program, the Federal Reserve loaned relatively liquid Treasury securities to primary dealers for one month in exchange for eligible collateral consisting of other, less liquid securities.
The Fed also facilitated the purchase of Commercial Paper. My guess is that AAA rated General Electric's inability to roll over its Commercial Paper raised eyebrows at the Fed and motivated the creation of this program.
In early October 2008, the Federal Reserve announced the Commercial Paper Funding Facility (CPFF). Under this program, the Federal Reserve provided three-month loans to a limited liability company (LLC), which in turn purchased commercial paper from eligible issuers. The commercial paper that was eligible for purchase was newly issued, highly rated, US dollar-denominated, unsecured, and asset-backed commercial paper with a three-month maturity.
The Fed got involved with Asset-backed securities. Was there anything Helicopter Ben wasn't involved in?
Asset-backed securities (ABS) are a common instrument used to finance a variety of consumer and business lending. In late 2008, interest rates on ABS rose and issuance fell sharply. In March 2009, the Federal Reserve, in cooperation with the US Department of the Treasury, introduced the Term Asset-Backed Securities Loan Facility (TALF). Under the program, the Federal Reserve issued nonrecourse loans with a term of up to five years to US holders of eligible ABS.
During the Financial Crisis, I was aware that the Fed was doing really extraordinary things to unfreeze the credit markets. In fact, I joked that all my credit cards would be reissued and that the new cards would say "Federal Reserve Bank." I joked that the Fed would buy my mortgage and my credit line at the Bank. Turned out I wasn't far off. This was more intervention than what I realized.

The Fed, in concert with TARP, and the Treasury was the lender of last resort for the whole economy.

Here is the link:

https://www.federalreservehistory.org/e ... t_programs
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 05, 2018 11:05 pm

bhsince87 wrote:
Thu Jul 05, 2018 8:13 pm
...
PJW, If the primary dealers know that the Fed wants rates to rise, do yo think they might be nudged to raise their bids a bit?
I don't know how that could happen given the fact the auctions are sealed-bid. Nobody knows what anybody else has bid, and even the Fed, which merely conducts the auction, doesn't look at the bids before the deadline.

Furthermore, there are many bidders who are not Primary Dealers. You could bid. I could bid. I have.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 05, 2018 11:06 pm

I'm sorry nedsaid, but the Fed is only the lender of last resort for US banks.
PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by JoMoney » Thu Jul 05, 2018 11:27 pm

Phineas J. Whoopee wrote:
Thu Jul 05, 2018 11:06 pm
I'm sorry nedsaid, but the Fed is only the lender of last resort for US banks.
PJW
Well, there was lending to at least some non-US banks
https://www.smh.com.au/world/fed-lifts- ... 18hn8.html
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 05, 2018 11:33 pm

JoMoney wrote:
Thu Jul 05, 2018 11:27 pm
Phineas J. Whoopee wrote:
Thu Jul 05, 2018 11:06 pm
I'm sorry nedsaid, but the Fed is only the lender of last resort for US banks.
PJW
Well, there was lending to at least some non-US banks
https://www.smh.com.au/world/fed-lifts- ... 18hn8.html
The Fed has lent to other banks, including central banks, but the assertion which was incorrect was it is the lender of last resort to them.

The Fed is only the lender of last resort for US banks.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Valuethinker » Fri Jul 06, 2018 7:35 am

nedsaid wrote:
Tue Jul 03, 2018 10:53 am
This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.
The US does not have foreign exchange controls. Thus that is only true if you look at savings and borrowings on a global basis.

The mirror of the US current account deficit is that foreign savers have bigger investments in USA. Whether public sector bonds or private sector securities and private assets (eg real estate).
Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.
It's more useful to look at the current account balance. The US find a surplus on services eg legal services or Hollywood royalties.

A big chunk of US trade deficit has been oil and gas imports. In fact USA has a trade surplus w Canada if you strip out energy imports. As fracking rises that deficit (the US is the world's largest oil consumer but also its third largest producer) shrinks. Also it goes out until about 2006 in retrospect because of the consumer boom around the housing bubble and has been more modest since the Crash.

You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.

It was interesting that when the US Government ran huge deficits in the aftermath of the 2008-2009 financial crisis that the national savings rate went up, that US Corporations were flush with cash, and that bank reserves held at the Fed swelled.

What I am saying is pretty controversial as it is counterintuitive. Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.

So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt.
What you are saying is classic Keynesian analysis. You need to throw in Robert Mundell, the Canadian Nobel prize winner who added a Balance of Payments line to Keynes's IS LM model.

Talking about debt and savings is meaningless if we do not include the international dimension. Deficit in traded goods is meaningless if you don't also talk about services.

And manufacture is internationally integrated. Less than 100 dollars of the 1000 dollar retail price of an iPhone goes to China. 400 dollars plus goes to the USA. Similarly trade w Mexico and Canada is so integrated that the same car counts in both US exports and imports. A part can cross those borders something like 50 times (I believe I read) on the way to the finished product. And the US will do the car finance and insurance.

When private sector investment and consumption falls as it did 2008 onwards then US govt revenues fell and expenditures rose. The scale was large because of the Titanic and global nature of the Crash and the degree to which private sector sought to reduce its record debt load built up in the bubble years 2001 to 2007.

Hyman Minsky (very difficult to read, alas) predicted all this in his theories of the effects of financial crashes.

Empirically none of this was unfamiliar to students of international economic crises like the 1997 98 Asia crash or indeed Japan which has been running this story for nearly 30 years.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Valuethinker » Fri Jul 06, 2018 7:47 am

nedsaid wrote:
Thu Jul 05, 2018 9:20 pm
Here is more:
John Weinberg, Federal Reserve Bank of Richmond said:

Since its inception, the Federal Reserve has been authorized to lend to banks. At first, access to the Federal Reserve Banks’ standard lending facility―known as the “discount window”―was limited to member banks, and collateral was limited to certain commercial paper―essentially short-term business and agricultural loans—and US Treasury securities. Later, during the strained credit conditions of the Great Depression, eligible collateral was broadened to include any asset acceptable to the lending Federal Reserve Bank. In addition, in 1932, Congress expanded the Fed’s lending authority beyond banks by adding Section 13(3) to the Federal Reserve Act, which permitted the Board of Governors, in “unusual and exigent circumstances” and under other conditions, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations.
The Fed also was a lender of last resort to other Central Banks around the world.
In addition to the strains in US funding markets, short-term dollar funding markets abroad also came under pressure. Many foreign banks were facing problems in raising dollars to fund their investments in dollar-denominated assets. To improve their access to dollar funding, the Federal Reserve established temporary central bank liquidity swap lines (also referred to as reciprocal currency arrangements) with a number of foreign central banks.

The FOMC authorized temporary dollar liquidity swap arrangements with fourteen foreign central banks between December 12, 2007, and October 29, 2008. The arrangements expired on February 1, 2010. In May 2010, in response to the reemergence of strains in short-term dollar funding markets abroad, the FOMC reauthorized dollar liquidity swap lines with five foreign central banks. At the peak of utilization of the dollar liquidity swaps, $586 billion was outstanding on December 4, 2008.
Helicopter Ben was a busy man, figuratively dropping money out of helicopters not only in the US but to a lesser extent outside the United States. The Federal Reserve established lines of credit with other Central Banks but never used them.
"Helicopter money " properly includes the cancellation of the associated government bond. The Fed acquires a liability of currency and an asset of a US Treasury security then cancels the asset.

It wasn't tried and AFAIK it would be illegal.

If the 1970s Rational Expectations Revolution in economic thought taught us anything it is that only a permanent increase in the core money supply can create a permanent change in the price level. As long as the market thinks the Fed will redeem those US govt securities some day, the effect is not permanent.

Credit was extended to primary dealers.
In March 2008, in response to liquidity pressures faced by primary dealers, the Federal Reserve established the Term Securities Lending Facility (TSLF) as a means of addressing the funding pressures faced by primary dealers. Under this program, the Federal Reserve loaned relatively liquid Treasury securities to primary dealers for one month in exchange for eligible collateral consisting of other, less liquid securities.
The Fed also facilitated the purchase of Commercial Paper. My guess is that AAA rated General Electric's inability to roll over its Commercial Paper raised eyebrows at the Fed and motivated the creation of this program.
In early October 2008, the Federal Reserve announced the Commercial Paper Funding Facility (CPFF). Under this program, the Federal Reserve provided three-month loans to a limited liability company (LLC), which in turn purchased commercial paper from eligible issuers. The commercial paper that was eligible for purchase was newly issued, highly rated, US dollar-denominated, unsecured, and asset-backed commercial paper with a three-month maturity.
The Fed got involved with Asset-backed securities. Was there anything Helicopter Ben wasn't involved in?
Asset-backed securities (ABS) are a common instrument used to finance a variety of consumer and business lending. In late 2008, interest rates on ABS rose and issuance fell sharply. In March 2009, the Federal Reserve, in cooperation with the US Department of the Treasury, introduced the Term Asset-Backed Securities Loan Facility (TALF). Under the program, the Federal Reserve issued nonrecourse loans with a term of up to five years to US holders of eligible ABS.
During the Financial Crisis, I was aware that the Fed was doing really extraordinary things to unfreeze the credit markets. In fact, I joked that all my credit cards would be reissued and that the new cards would say "Federal Reserve Bank." I joked that the Fed would buy my mortgage and my credit line at the Bank. Turned out I wasn't far off. This was more intervention than what I realized.

The Fed, in concert with TARP, and the Treasury was the lender of last resort for the whole economy.

Here is the link:

https://www.federalreservehistory.org/e ... t_programs
Adam Tooze (famous for his reconstruction of WW2 German economy) has written a book about the Crash which is full of insights.

In particular I had not appreciated the importance of the Eurodollar paper markets. The short term flow of liquidity from the US financial system to overseas banks via Eurodollar paper (dollar securities issued outside USA).

What Bernanke did was extraordinary and the alternatives are too awful to contemplate. We were lucky indeed to have such an accomplished economic historian, w particular understanding of The Great Depression and of Japan, in charge.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by triceratop » Fri Jul 06, 2018 8:00 am

The discussion is veering into economic policy, which is forbidden (see rules); please stay on topic.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Fri Jul 06, 2018 9:11 am

Phineas J. Whoopee wrote:
Thu Jul 05, 2018 11:06 pm
I'm sorry nedsaid, but the Fed is only the lender of last resort for US banks.
PJW
Wow. I went directly to Fed sources to research. Congress back in Great Depression times gave the Federal Reserve Bank extraordinary powers to act during times of crisis. This authority goes beyond just US Banks. Please read the articles that I posted links to.

In any event, there was no "T-Bill" massacre recently. The auctions are set up so that there is guaranteed demand for Treasuries. This is among the least of my worries. There is a legitimate concern about inflation but not that there won't be buyers for Treasury debt.
Last edited by nedsaid on Fri Jul 06, 2018 9:22 am, edited 1 time in total.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Call_Me_Op » Fri Jul 06, 2018 9:17 am

bhsince87 wrote:
Tue Jul 03, 2018 12:03 pm
Another way to describe that is to say "The Market" wanted to buy $85 billion worth of notes. The Government only wanted to sell $35 Billion.

It's a little more complicated than that, in that weaker demand can drive up rates.

But in other fields, anything over 2.0 is considered a successful auction. It's hard to see how this is a slaughter.
Right. I notice that rates have not budged - so couldn't be a big concern.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Fri Jul 06, 2018 12:50 pm

nedsaid wrote:
Fri Jul 06, 2018 9:11 am
Phineas J. Whoopee wrote:
Thu Jul 05, 2018 11:06 pm
I'm sorry nedsaid, but the Fed is only the lender of last resort for US banks.
PJW
Wow. I went directly to Fed sources to research. Congress back in Great Depression times gave the Federal Reserve Bank extraordinary powers to act during times of crisis. This authority goes beyond just US Banks. Please read the articles that I posted links to.
...
Please read this definition of the term lender of last resort.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Fri Jul 06, 2018 3:45 pm

nedsaid wrote:
Fri Jul 06, 2018 9:11 am
In any event, there was no "T-Bill" massacre recently. The auctions are set up so that there is guaranteed demand for Treasuries. This is among the least of my worries. There is a legitimate concern about inflation but not that there won't be buyers for Treasury debt.
:thumbsup
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Oicuryy » Tue Jul 10, 2018 2:31 pm

The discount rate at today's (7/10/18) 28-day T-bill auction was 1.850%. The bid-to-cover ratio was 3.16.
https://treasurydirect.gov/instit/annce ... 0710_1.pdf

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 10, 2018 6:34 pm

Oicuryy wrote:
Tue Jul 10, 2018 2:31 pm
The discount rate at today's (7/10/18) 28-day T-bill auction was 1.850%. The bid-to-cover ratio was 3.16.
https://treasurydirect.gov/instit/annce ... 0710_1.pdf

Ron
So it was the 4th and/or the world cup last week. :sharebeer
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by david1082b » Tue Jul 10, 2018 7:19 pm

Doc wrote:
Tue Jul 10, 2018 6:34 pm
Oicuryy wrote:
Tue Jul 10, 2018 2:31 pm
The discount rate at today's (7/10/18) 28-day T-bill auction was 1.850%. The bid-to-cover ratio was 3.16.
https://treasurydirect.gov/instit/annce ... 0710_1.pdf

Ron
So it was the 4th and/or the world cup last week. :sharebeer
Or maybe it was just noise and nothing at all? The so-called massacre was actually a perfectly OK auction that went off without a hitch. Loads more bids than were needed. "It" was the scaremongering interpretation made up by some editors who wanted some clicks on their articles so they can get some revenue and justify their jobs.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Wed Jul 11, 2018 7:54 am

david1082b wrote:
Tue Jul 10, 2018 7:19 pm
Doc wrote:
Tue Jul 10, 2018 6:34 pm
Oicuryy wrote:
Tue Jul 10, 2018 2:31 pm
The discount rate at today's (7/10/18) 28-day T-bill auction was 1.850%. The bid-to-cover ratio was 3.16.
https://treasurydirect.gov/instit/annce ... 0710_1.pdf

Ron
So it was the 4th and/or the world cup last week. :sharebeer
Or maybe it was just noise and nothing at all? The so-called massacre was actually a perfectly OK auction that went off without a hitch. Loads more bids than were needed. "It" was the scaremongering interpretation made up by some editors who wanted some clicks on their articles so they can get some revenue and justify their jobs.
The yield changed by some 10 bps. That change for T-bills in one day is not just noise in my mind.

I would suggest that the participants that are required to bid in order to maintain their status might simply put in a low bid that they don't want to be filled anyway. Hence low cover ratios can distort the market if it is below normal.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Wed Jul 11, 2018 8:29 am

Doc wrote:
Wed Jul 11, 2018 7:54 am
david1082b wrote:
Tue Jul 10, 2018 7:19 pm
Doc wrote:
Tue Jul 10, 2018 6:34 pm
Oicuryy wrote:
Tue Jul 10, 2018 2:31 pm
The discount rate at today's (7/10/18) 28-day T-bill auction was 1.850%. The bid-to-cover ratio was 3.16.
https://treasurydirect.gov/instit/annce ... 0710_1.pdf

Ron
So it was the 4th and/or the world cup last week. :sharebeer
Or maybe it was just noise and nothing at all? The so-called massacre was actually a perfectly OK auction that went off without a hitch. Loads more bids than were needed. "It" was the scaremongering interpretation made up by some editors who wanted some clicks on their articles so they can get some revenue and justify their jobs.
The yield changed by some 10 bps. That change for T-bills in one day is not just noise in my mind.

I would suggest that the participants that are required to bid in order to maintain their status might simply put in a low bid that they don't want to be filled anyway. Hence low cover ratios can distort the market if it is below normal.
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Wed Jul 11, 2018 9:36 am

nedsaid wrote:
Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
The Fed raised their target by 25 bps in the June 12-13 meeting - two weeks before the auction in question. (The target is a 25 bps range not a specific number.) The meeting minutes were not released until July 5th - 3 days after the auction. The Fed action does not explain the one day jump in yield or the significant drop in the cover ratio.

The original citations were from reliable sources. If there was some logical explanation for the spike it would have been addressed.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 12, 2018 11:53 am

Doc wrote:
Wed Jul 11, 2018 9:36 am
nedsaid wrote:
Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
The Fed raised their target by 25 bps in the June 12-13 meeting - two weeks before the auction in question. (The target is a 25 bps range not a specific number.) The meeting minutes were not released until July 5th - 3 days after the auction. The Fed action does not explain the one day jump in yield or the significant drop in the cover ratio.

The original citations were from reliable sources. If there was some logical explanation for the spike it would have been addressed.
We have an environment where short term interest rates have been rising. I would not obsess over one auction and one day's trading of treasury bills. Rates are still pretty low. I remember the days you could get 8% on US Treasury Strips, I remember buying three of these and I think these were 5 year instruments. When rates were 8%, did this imply a shortage of buyers?
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Thu Jul 12, 2018 12:22 pm

nedsaid wrote:
Thu Jul 12, 2018 11:53 am
We have an environment where short term interest rates have been rising. I would not obsess over one auction and one day's trading of treasury bills. Rates are still pretty low.
It is not about the rates still being pretty low. It's about the Treasury auction functioning as expected..
That’s the lowest so-called bid-to-cover ratio in a decade and far below this year’s average of 2.99 times.
https://www.bloomberg.com/view/articles ... re-of-2018
The ratio of bids to the amount offered, which is a gauge of auction demand, was 2.62, which was the lowest since Dec. 29, 2008, Simons said.
https://www.reuters.com/article/us-usa- ... SKBN1JS2FH

If the demand for Treasuries goes to nil we are in deep doo doo. Apparently this was a one off event, hopefully.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 12, 2018 12:33 pm

Doc wrote:
Thu Jul 12, 2018 12:22 pm
nedsaid wrote:
Thu Jul 12, 2018 11:53 am
We have an environment where short term interest rates have been rising. I would not obsess over one auction and one day's trading of treasury bills. Rates are still pretty low.
It is not about the rates still being pretty low. It's about the Treasury auction functioning as expected..
That’s the lowest so-called bid-to-cover ratio in a decade and far below this year’s average of 2.99 times.
https://www.bloomberg.com/view/articles ... re-of-2018
The ratio of bids to the amount offered, which is a gauge of auction demand, was 2.62, which was the lowest since Dec. 29, 2008, Simons said.
https://www.reuters.com/article/us-usa- ... SKBN1JS2FH

If the demand for Treasuries goes to nil we are in deep doo doo. Apparently this was a one off event, hopefully.
I guess that a decade ago, we had relatively weak Treasury Auctions. Seems to me that the US Bond Market had some good years since then. Why weren't you sweating over this a decade ago? My point is that there are ebbs and flows to the investment markets. There is always something to worry about. Think of all the angst over the Schiller P/E 10 ratio for US Stocks.

As Peter Lynch said we worried about the sex scandals. We worried about the money scandals. We worried about the sex and money scandals and later the money and sex scandals.

Way back in 1984, as I was starting my career, I saw books in the bookstore warning about the impending bankruptcy of the United States as well as the death of the dollar. There are legitimate reasons to be concerned about the level of Federal Debt, legitimate reasons to worry about confidence in the currency, and probably legitimate reasons to worry about demand for Federal Debt at Treasury Auctions. It is these combined worries that make a market as all investors make their collective judgements.

If you are worried about US Treasuries, what is your game plan for dealing with your concerns? What would you recommend investors do in light of your concerns?
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Phineas J. Whoopee » Thu Jul 12, 2018 2:56 pm

Doc wrote:
Wed Jul 11, 2018 7:54 am
...
I would suggest that the participants that are required to bid in order to maintain their status might simply put in a low bid that they don't want to be filled anyway. Hence low cover ratios can distort the market if it is below normal.
Given that the bids are yields, not prices, with the lowest ones being accepted, I believe you must have meant to write high bid.

PJW

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Thu Jul 12, 2018 3:35 pm

Phineas J. Whoopee wrote:
Thu Jul 12, 2018 2:56 pm
Doc wrote:
Wed Jul 11, 2018 7:54 am
...
I would suggest that the participants that are required to bid in order to maintain their status might simply put in a low bid that they don't want to be filled anyway. Hence low cover ratios can distort the market if it is below normal.
Given that the bids are yields, not prices, with the lowest ones being accepted, I believe you must have meant to write high bid.

PJW
Thanks, I keep screwing that up in my mind even though I know the difference. When you are auctioning that Picasso the winner is the highest bidder (price) but when you are auctioning Treasuries the winner is the lowest bidder (yield).

FWIW (probably nothing) the bids from Primary Bidders on July 2 were $75,660,000,000 and a week later on July 10 the Primary Bidder Bids $91,905,000,000.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Thu Jul 12, 2018 3:37 pm

nedsaid wrote:
Thu Jul 12, 2018 12:33 pm
What would you recommend investors do in light of your concerns?
Be aware.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by triceratop » Thu Jul 12, 2018 4:15 pm

How often are worst-in-a-decade events expected to occur? Why is there a sky falling article written every time, with no recognition that these things are expected to occur with a certain frequency?
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Oicuryy » Thu Jul 12, 2018 4:20 pm

nedsaid wrote:
Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by GAAP » Thu Jul 12, 2018 4:26 pm

triceratop wrote:
Thu Jul 12, 2018 4:15 pm
How often are worst-in-a-decade events expected to occur? Why is there a sky falling article written every time, with no recognition that these things are expected to occur with a certain frequency?
Once a decade, of course -- but tomorrow ends/starts a new decade...

"The sky is falling" always gets more attention than "the sky isn't doing anything".

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by balbrec2 » Thu Jul 12, 2018 5:28 pm

MinhN wrote:
Tue Jul 03, 2018 10:57 am
There may be a point when the US can no longer ask the world to pay for its excesses. My outlook on US debt is not positive.
The US dollar's status as the worlds reserve currency would have to
go away before I see that happening. Not that it couldn't happen!!

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Thu Jul 12, 2018 5:32 pm

Oicuryy wrote:
Thu Jul 12, 2018 4:20 pm
by Oicuryy » Thu Jul 12, 2018 4:20 pm
nedsaid wrote: ↑Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising
Guys, it is NOT about the rate. It is about the lack of interest in buying T-bills. If the auction doesn't work because normal participants went off to see the fireworks or the world cup our "normal" indicators of what the market is saying no longer makes any difference. If it was the rest of the world that cares not about "football" that's another matter.

( My personal opionion is that this is an aberration and means little.)
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by ThriftyPhD » Thu Jul 12, 2018 6:37 pm

Doc wrote:
Thu Jul 12, 2018 5:32 pm
Oicuryy wrote:
Thu Jul 12, 2018 4:20 pm
by Oicuryy » Thu Jul 12, 2018 4:20 pm
nedsaid wrote: ↑Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising
Guys, it is NOT about the rate. It is about the lack of interest in buying T-bills. If the auction doesn't work because normal participants went off to see the fireworks or the world cup our "normal" indicators of what the market is saying no longer makes any difference. If it was the rest of the world that cares not about "football" that's another matter.

( My personal opionion is that this is an aberration and means little.)
But there wasn't a lack of interest in buying T-bills. They usually get 3 times as many bids and available, this time it was 2.5 times as many.

They usually turn away 66% of buyers, this time it was 60%.

If restaurant A turns away 66% of diners because the restaurant is full, and restaurant B turns away 60% of diners because the restaurant is full, you wouldn't say there is a lack of interest in restaurant B. There's clearly a lot of interest in BOTH restaurants, since they're turning away most potential customers.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Thu Jul 12, 2018 6:46 pm

ThriftyPhD wrote:
Thu Jul 12, 2018 6:37 pm
Doc wrote:
Thu Jul 12, 2018 5:32 pm
Oicuryy wrote:
Thu Jul 12, 2018 4:20 pm
by Oicuryy » Thu Jul 12, 2018 4:20 pm
nedsaid wrote: ↑Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising
Guys, it is NOT about the rate. It is about the lack of interest in buying T-bills. If the auction doesn't work because normal participants went off to see the fireworks or the world cup our "normal" indicators of what the market is saying no longer makes any difference. If it was the rest of the world that cares not about "football" that's another matter.

( My personal opionion is that this is an aberration and means little.)
But there wasn't a lack of interest in buying T-bills. They usually get 3 times as many bids and available, this time it was 2.5 times as many.

They usually turn away 66% of buyers, this time it was 60%.

If restaurant A turns away 66% of diners because the restaurant is full, and restaurant B turns away 60% of diners because the restaurant is full, you wouldn't say there is a lack of interest in restaurant B. There's clearly a lot of interest in BOTH restaurants, since they're turning away most potential customers.
:thumbsup :D
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 12, 2018 7:29 pm

ThriftyPhD wrote:
Thu Jul 12, 2018 6:37 pm
Doc wrote:
Thu Jul 12, 2018 5:32 pm
Oicuryy wrote:
Thu Jul 12, 2018 4:20 pm
by Oicuryy » Thu Jul 12, 2018 4:20 pm
nedsaid wrote: ↑Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising
Guys, it is NOT about the rate. It is about the lack of interest in buying T-bills. If the auction doesn't work because normal participants went off to see the fireworks or the world cup our "normal" indicators of what the market is saying no longer makes any difference. If it was the rest of the world that cares not about "football" that's another matter.

( My personal opionion is that this is an aberration and means little.)
But there wasn't a lack of interest in buying T-bills. They usually get 3 times as many bids and available, this time it was 2.5 times as many.

They usually turn away 66% of buyers, this time it was 60%.

If restaurant A turns away 66% of diners because the restaurant is full, and restaurant B turns away 60% of diners because the restaurant is full, you wouldn't say there is a lack of interest in restaurant B. There's clearly a lot of interest in BOTH restaurants, since they're turning away most potential customers.
That Restaurant is so crowded that nobody goes there anymore.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by ThriftyPhD » Thu Jul 12, 2018 8:20 pm

nedsaid wrote:
Thu Jul 12, 2018 7:29 pm
ThriftyPhD wrote:
Thu Jul 12, 2018 6:37 pm
Doc wrote:
Thu Jul 12, 2018 5:32 pm
Oicuryy wrote:
Thu Jul 12, 2018 4:20 pm
by Oicuryy » Thu Jul 12, 2018 4:20 pm
nedsaid wrote: ↑Wed Jul 11, 2018 8:29 am
Didn't the Fed just raise the Federal Funds rate to 2% in June and signal that there will be one more rate hike in 2018 than what had previously been anticipated? An uptick in T-Bill rates should not be too surprising.
It isn't too surprising
Guys, it is NOT about the rate. It is about the lack of interest in buying T-bills. If the auction doesn't work because normal participants went off to see the fireworks or the world cup our "normal" indicators of what the market is saying no longer makes any difference. If it was the rest of the world that cares not about "football" that's another matter.

( My personal opionion is that this is an aberration and means little.)
But there wasn't a lack of interest in buying T-bills. They usually get 3 times as many bids and available, this time it was 2.5 times as many.

They usually turn away 66% of buyers, this time it was 60%.

If restaurant A turns away 66% of diners because the restaurant is full, and restaurant B turns away 60% of diners because the restaurant is full, you wouldn't say there is a lack of interest in restaurant B. There's clearly a lot of interest in BOTH restaurants, since they're turning away most potential customers.
That Restaurant is so crowded that nobody goes there anymore.

Yogi Berra
Great minds think alike?
ThriftyPhD wrote:
Tue Jul 03, 2018 6:33 pm
Heh, reminds me of:
Yogi Berra wrote:Nobody goes there anymore. It’s too crowded.
There was demand for $85.75 billion in 4 weeks T bills, they only had $35 billion for sale. Methinks they don't understand what "massacre" means.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Thu Jul 12, 2018 8:25 pm

ThriftyPhD wrote:
Thu Jul 12, 2018 8:20 pm

Great minds think alike?
Well, I have called Yogi Berra the Great American Philosopher. Right up there with the T-Shirt philosopher who said, "Stuff happens."

Well, it wasn't stuff, but you get the idea.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Fri Jul 13, 2018 1:53 pm

In a "classic" auction if there are only a few bidders then the price tends to be lower. If there are a lot of bidders the competition amongst them makes the bids go higher and higher. That's good for the seller.

Because in a Treasury auction the bids are for yield not price the relation is somewhat reversed. If their are few bidders the yield is higher. If there are lots of bidders the competition amongst them makes the bids (yield) go lower and lower. In that case the competition is still good for the seller i.e. the Treasury.

The amount of bidders in the July 3 auction was the lowest in some ten years. Abd much lower than normal. That means the cost to the Treasury from the extra interest on the bills was much greater than in a normal auction. In fact the yield on the 4 week bill jumped much more than is normal for a one day period. The fact that all the bills were still sold is not relevant. The fact is that the Treasury had to pay more to get the investors to lend money to the Treasury is what is relevant. If this was a one off it matters little and it look as though it was something abnormal like maybe the world cup.

The idea that there were still enough bids to sell all the securities is irrelevant. If the Treasury could not sell all the securites the Treasury would not have the money to pay its debts. Using the idea that all the securites were still sold so everything's AOK is absurd. If the Government cannot pay its debts we would have financial collapse not just an auction hiccough.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by bhsince87 » Fri Jul 13, 2018 2:18 pm

With all the huffing and puffing over that auction, i expected we would hear a similar level of concern this week.

Well, the numbers are out for the July 10th auction.

3.16 bid to cover ratio versus 2.45 on July 2.

High rate: 1.85% vs 1.86%

Median rate: 1.83 vs 1.83

Low rate: 1.81 vs 1.78

Bottom line? Looks like it was just noise.
BH87

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Fri Jul 13, 2018 2:45 pm

bhsince87 wrote:
Fri Jul 13, 2018 2:18 pm
Bottom line? Looks like it was just noise.
Noise is random variation within ± 2 standard deviations from the mean.

A major once in ten year event is not noise. But it could have been a hiccough. :D
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Sat Jul 14, 2018 10:20 am

Doc wrote:
Fri Jul 13, 2018 1:53 pm


The idea that there were still enough bids to sell all the securities is irrelevant. If the Treasury could not sell all the securites the Treasury would not have the money to pay its debts. Using the idea that all the securites were still sold so everything's AOK is absurd. If the Government cannot pay its debts we would have financial collapse not just an auction hiccough.
What struck me as I studied the monetary system is how artificial this stuff is and how dependent it is on public confidence. I was struck by how the Germans stopped hyperinflation in Germany in part by trading in the "bad" German marks for "good" German marks. It was just an exchange of paper and yet, because of public confidence, it seemed to work. No logical explanation for why one set of paper bills was bad and the new set of paper bills was good. People had the sense that
the economy was going to change so they accepted the new marks.

There is an element to artificiality to the National Debt as well. It is useful in that it creates an asset a public can buy with zero risk of default and the public debt also creates a benchmark in the bond market. I wonder if this activity actually funds anything at all.

I still remember operating the scoreboard while I was in high school. When someone scored a basket, I just clicked the button a couple of times. I didn't have to go into a store room to get more points, I just created them with the click of a button. There was no debate whether the points were real, the crowd at the game just accepted it. Now if I accidently clicked three times instead of two (in the days before the 3 pointer), the referees would have noticed and a point would have disappeared as easily as it was created.

Similarly, I have read about the Government being funded by people entering numbers into a computer. Sort of like me operating the scoreboard in High School. People click away all day long and no one questions if the Federal Government has enough cash to pay its bills. US Government checks do not bounce. No one questioned the points I created in High School with the click of a button.

Someone made a comment to me that there seemed to be Voo-Doo, a sort of a magic that makes all this work. The Wizard of Oz behind the curtain or a wave of a wand.

I do own Treasury instruments myself. They have value. I keep currency in my pocket as it has value. They have value because of the taxing power of the government, the productivity of the economy, and acceptance by the public.
A fool and his money are good for business.

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