30y Bond Results: Beware
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The auction results make absolutely no sense under "conventional wisdom."
Median yield down, primary dealers took about half and indirect bidders took the other half, basically.
What? 50% take for foreign central banks on 30y debt at a 4.6ish coupon?
That makes no sense given what we're being told is coming: massive inflation, maybe even hyperinflation, commodities ramping to the moon, the stock market going to the moon in a hyper-inflationary printing explosion.
The stock market rocketed on the release. I couldn't make sense out of the initial FX moves, especially in the DX and Yen. Someone was front-running in the financials bigtime as well, with a big ramp for an hour or so prior to the results.
Folks, if you think hyperinflation is coming, or even serious inflation, you're going to get your head cut off on a 4.6% 30y bond. In fact you could easily lose half or more of your investment, should you need to sell, and your coupon will be half or less of what it should be.
So how does this make any sense?
There is only one reason for the FCBs to want this sort of exposure:
They expect a ramp in the dollar and crushing DEFLATION, as this is the only way that bet will pay off.
If you're on the other side of this trade in any way, I hope you are putting on some sort of hedge.
Remember, foreign central banks can FORCE a pull in liquidity and make their desires a self-fulfilling prophecy.
Care to bet against someone who can make their bet pay off?
That's what I thought.....
Oh guess what - the primary dealers would like this outcome too......
PS: If this analysis is correct then we're in for some really NASTY trouble, quite soon. If you're short Ts, short dollars or long equities, your neck is in the guillotine. Better move before the blade falls!
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You stop the printing the DX goes up, bonds go up in price (down in yield) debt is forced to default and unwind and both equities and commods get smashed to dust.They MAY be about to execute on the correct thing to do that will clear the system - recognition may have finally occurred that the path they were on can't possibly work.
If so, those who are on the wrong side of this are going to get destroyed, as these folks CAN make it happen.
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Other people HAVE to be seeing the same **** we are -- why is the reaction still so positive? Are we missing something? How much dumb money can there be in the bond market?
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Its not dumb money in the bond market.
If you believe there will be massive deflation you buy the **** out of the long end of the curve.
Something CHANGED this morning Asi. You don't buy long bonds if you think printing is going to take place (or continue to take place); that's suicidal as the value change is "coupon change x duration" - you can literally lose half in a few months. Levered, you're dead in a day.
The PDs are long Ts up to their necks. If the selloff continues they will ALL blow up. Every one of them. It ain't gonna happen.
The only thesis that makes the buying logical is the belief that the values will INCREASE. That means the DX must rise and/or coupon must come down, and both require that the hyperinflationary thesis be WRONG.
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What about the thesis that the bond market buyers (however misguidedly) believe that we are in for a gradual, non-hyperinflationary, non-deflationary recovery?
Wouldn't that support 30yr bond successful auction @ 4.6%?
Fnord, no. Such a recovery requires modest dollar devaluation which would skull**** the buyers.
Ain't happening. These guys just placed a big fat-ass deflation bet and they are the ones who can make it happen.
Bet against that if you want, but the tape tells me what they intend, and they're the ones in front of the buttons.
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How does this happen overnight, after such poor results on the 10 year auction? Did all the PDs have a worldwide conference call with the foreign central banks, and they all decided on a course of action? How else could everybody conclude overnight that treasuries are now a good buy, 24 hours after concluding they weren't?
Mondo, I think the FCBs have been watching QE and have seen it doesn't work.
The decision was made.
Look, come up with a different explanation that makes sense, ok? I'm all ears - but I can't come up with one.
There is no possible reason for China or Japan to eat half of the value of those bonds, which is exactly what they will do if we get any meaningful amount of inflation over the next 5-10 years.
The floor is about to disappear folks.
"There is only one reason for the FCBs to want this sort of exposure:"
"Look, come up with a different explanation that makes sense, ok? I'm all ears - but I can't come up with one."
OK I'll bite: the simplest explanation of all, which is collusion. CB's know that the whole shebang is on the table and will do whatever is required, including coordination of activities. I have stated more times than I can remember, we are experiencing the greatest coordinated global reinflation effort of all time, and no effort will be spared. The CB's may represent "competitor" nations, but at their core are all statist institutions and who all have an overriding stake in seeing the existing international system continue intact. If America blows up, the world turns to chaos, and it is easy for them to imagine themselves doing all of this for our benefit, with the added benefit that they get to stay on top of the pile.
FOREX exchange rates are meaningless when all currencies are being debased simultaneously. USDX = meaningless. The fact that foreign CB's bought half of the offer merely indicates that they are team players, and the teams are "Banksters and governments" and "taxpayers and debt slaves". It all makes perfect sense. Ben will print some more and do some more currency swaps; ho hum.
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Stock, it is simply about why a FCB would buy 50% of a long issue if we are going to continue to print and debase the currency.
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Raingod: CNBC reported that it was the government buying through a back door that gave the good results -- A one time "rebalancing of the index" or some bull**** like that.
If that's the case -- it's actually considerably worse than a failed auction, because the gov UNSUCCESSFULLY tried to cover up a failed auction. If it's true, when word circulates about it.... Well. I guess the word horrific might sum it up nicely.
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Does anyone know if Barclays got any AIG bailout money?
From Reuters - $8.5 billion. I was also thinking that this might have been a favor called in by Ben.
Who knows what kind of under-the-table deals and maniplations have been going on these last few weeks with the bond markets?
Maybe Obama and company finally got a strong message behind closed-doors from the bond traders. Remember what Bill Clinton said, "my re-election hinges on the Federal Reserve and a bunch of ****ing bond traders?"
Net US household worth is off $14 trillion from the 2007 peak, and continues to drop like a rock. That sounds like deflation to me.
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