• Tag Archives Treasuries
  • The Incredible Shrinking Relative Float Of Treasury Bonds

    Via Global Macro Monitor blog,
    Lots of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
    Most of what is happening with the U. S. yield curve is technical. Sure, traders can get a wild hair up their arse, believing the economy is slowing and try and game duration by punting in the cash or futures markets. Given the small relative float of the U. S. Treasury bond market, however, it doesn’t take much buying to move yields. In the words of economists, the supply curve of outstanding Treasuries is very inelastic.
    This is illustrated in the following chart. The combined market cap of just Apple and Amazon at today’s close is larger than the entire the float of outstanding Treasury notes and bonds that mature from 2027-2027. We define float (US$1.16 trillion) as total Treasury securities (2027-2047) outstanding (US$1.73 trillion) less Fed holdings (US$575 billion).

    This post was published at Zero Hedge on Jun 23, 2017.

  • SWOT Analysis: Is India’s Gold Market Recovering?

    The best performing precious metal for the week was gold, off just 1.02 percent despite a Fed rate hike. The Fed may not be in a position to continue with multiple rate hikes. Mike McGlone, BI Commodity Strategist, points out the current situation that both crude oil futures and Treasury bond yields are falling. Since 1983, the Fed has never sustained a rate hike cycle while both crude and Treasuries are falling. Gold has risen from a three-week low as investors digest the latest rate hike and anticipate the probability of additional rate hikes, reports Bloomberg. Suki Cooper, an analyst with Standard Chartered, writes, ‘If the market starts pricing in the end to the current hiking cycle, this would remove a major headwind for gold and allow prices to breach the stubborn $1,300 threshold in a sustained move higher.’ Bloomberg reports that public sector investors increased their net gold holdings to an estimated 31,000 tons last year, an increase of 377 tons. This is the highest level since 1999. Weaknesses
    The worst performing precious metal for the week was silver with a loss of 2.90 percent. Money managers cut their net-long by about 10 percent this past week. For the second week in a row, gold traders and analysts surveyed by Bloomberg are bearish. This is the first time survey results have indicated two-week run of bearish outlook since December. Gold futures have had the longest losing streak in three months, as investors have anticipated the Fed’s actions this week. Bullion futures for August delivery closed down for the fourth straight session earlier this week.

    This post was published at GoldSeek on Monday, 19 June 2017.

  • PetroDollar System In Trouble As Saudi Arabia Continues To Liquidate Foreign Exchange Reserves

    The U. S. PetroDollar system is in serious trouble as the Middle East’s largest oil producer continues to suffer as extremely low oil price devastates its financial bottom line. Saudi Arabia, the key player in the PetroDollar system, continues to liquidate its foreign exchange reserves as the current price of oil is not covering the cost to produce oil as well as finance its national budget.
    The PetroDollar system was started in the early 1970’s, after Nixon dropped the Gold-Dollar peg, by exchanging Saudi Oil for U. S. Dollars. The agreement was for the Saudi’s only to take U. S. Dollars for their oil and reinvest the surpluses in U. S. Treasuries. Thus, this allowed the U. S. Empire to continue for another 46 years, as it ran up its ENERGY CREDIT CARD.
    And run up its Energy Credit Card it did. According to the most recent statistics, the total cumulative U. S. Trade Deficit since 1971, is approximately $10.5 trillion. Now, considering the amount of U. S. net oil imports since 1971, I calculated that a little less than half of that $10.5 trillion cumulative trade deficit was for oil. So, that is one heck of a large ENERGY CREDIT CARD BALANCE.

    This post was published at SRSrocco Report on JUNE 16, 2017.

  • Quiet Start To Quad Witching: Stocks Rebound Around The Globe, BOJ Hits Yen

    Today is quad-witching opex Friday, and according to JPM, some $1.3 trillion in S&P future will expire. Traditionally quad days are associated with a rise in volatility and a surge in volumes although in light of recent vol trends and overnight markets, today may be the most boring quad-witching in recent history: global stocks have again rebounded from yesterday’s tech-driven losses as European shares rose 0.6%, wiping out the week’s losses.
    USD/JPY climbed to two-week high, pushing the Nikkei higher as the BOJ maintained its stimulus and raised its assessment of private consumption without making a reference to tapering plans, all as expected. Asian stocks were mixed with the Shanghai Composite slightly softer despite the PBOC injecting a monster net 250 billion yuan with reverse repos to alleviate seasonal liquidity squeeze, and bringing the net weekly liquidity injection to CNY 410 billion, the highest in 5 months, while weakening the CNY fixing most since May. WTI crude is up fractionally near $44.66; Dalian iron ore rises one percent. Oil rose with metals. Treasuries held losses as traders focused on Yellen hawkish tone.
    The MSCI All Country World Index was up 0.2%, and after the latest global rebound, the value of global stocks is almost equal to that of the world’s GDP, the highest such ratio since th great financial crisis, BBG reported.

    This post was published at Zero Hedge on Jun 16, 2017.

  • We Are Getting Very Close To An Inverted Yield Curve – And If That Happens A Recession Is Essentially Guaranteed

    If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too? Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis. For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U. S. Treasury bond yields. Normally, short-term rates are higher than long-term rates, but when investors get spooked about the economy this can reverse. Just before every single recession since 1960 the yield curve has ‘inverted’, and now we are getting dangerously close to it happening again for the first time in a decade.
    On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points. According to Business Insider, this is almost the tightest that the yield curve has been since 2007…
    The spread between the yields on two-year and 10-year Treasurys fell to 79 basis points, or 0.79%, after Wednesday’s disappointing consumer-price and retail-sales data. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007.
    Perhaps more notably, it is on a path to ‘inverting’ – meaning it would cost more to borrow for the short term than the long term – for the first time since the months leading up to the financial crisis.

    This post was published at The Economic Collapse Blog on June 15th, 2017.

  • June FOMC Announcement: Rate Hike and Balance Sheet Plans

    June’s FOMC meeting concluded today and the meeting announcement revealed an interest rate hike of .25% to bring the Federal Funds target to between 1 and 1.25%. Additionally, we also learned that the FOMC anticipates one more rate in 2017, 3 more in 2018, and the beginning of a balance sheet reduction effort starting this year. Of course, the balance sheet reduction is actually just a taper in the amount of reinvestment. Since they are simply slowing down how much in assets they are buying every month, the balance sheet will still be increasing.
    There are still concerns at the FOMC (and in monetary officialdom in general) that the devaluation of our purchasing power (colloquially known as “inflation”) is not occurring rapidly enough. From their own statistics, which exclude things most important to consumers such as food and energy, price inflation dipped a bit to 1.7%. This, of course, is an utter outrage to the experts.
    We also got more specific detail about the balance sheet plan, which as we have said all year is going to be the primary narrative of the second half of 2017 in place of interest rate hike talks. Bloomberg reports:
    In a separate statement on Wednesday, the Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis. The initial cap will be set at $10 billion a month: $6 billion from Treasuries and $4 billion from mortgage-backed securities.

    This post was published at Ludwig von Mises Institute on June 15, 2017.

  • 14/6/17: Unwinding the Mess: Fed’s Road Map to QunE

    As promised in the previous post, a quick update on Fed’s latest guidance regarding its plans to unwind the $4.5 trillion sized balance sheet, to the Quantitative un-Easing…
    First, the size and the composition of the problem:

    So, as noted in the post here: the Fed is aiming to gradually unwind the size of its assets exposures on both, the U. S. Treasuries and MBS (mortgage-backed securities). This is a tricky task, because simply dumping both asset classes into the markets (aka, selling them to investors) risks pushing yields on Government debt up and value of Government bonds down, as well as the value of MBS assets down. The problem with this is that all of these assets are systemically important to… err… systemically important financial institutions (banks, pension funds, investment funds and insurance companies).

    This post was published at True Economics on June 14, 2017.

  • “FOMC Drift” In Full Effect As Global Stocks Rise; S&P Futures Hit New Record; Oil Slides

    With last Friday’s “tech wreck” now a distant memory, this morning the “FOMC Drift” described yesterday, which “guarantees” higher stock prices and a lower dollar heading into the Fed announcement is in full effect, with European and Asian stocks rising for a second day, led by rebounding tech shares, while S&P futures are modestly in the green and stocks on Wall Streets hit a record high overnight. And as the “FOMC Drift” also expected, the dollar has weakened for a third day with Treasuries rising, while oil fell after the latest IEA world forecast cut its global demand forecast while boosting output expectations.

    The MSCI All-Country World index was up 0.1% and has remained stuck in a tight range this month. European shares headed for the highest in more than a week as companies including ASML and Hexagon (on M&A speculation) led the tech share revival in the region. The Stoxx Europe 600 Index gained 0.6%, building on a 0.6% increase the day before. Apart from technology sector, European equity markets supported by continued pick-up in industrial production which helps construction stocks.

    This post was published at Zero Hedge on Jun 14, 2017.

  • 10/6/17: Cart & Rails of the U.S. Monetary Policy

    So, folks, what’s wrong with this picture, eh?

    Let’s start thinking. The U. S. Treasury yields are underlying the global measure of inflation since the onset of the global ‘fake recovery’. Both have been and are still trending to the downside. Sounds plausible for a ‘hedge’ asset against global economic stagnation. And the U. S. Treasuries can be thought of as such, given the U. S. economy’s lead-timing for the global economy. Except for a couple of things: U. S. Treasury is literally running out of money (by August, it will need to issue new paper to cover arising obligations and there is a pesky problem of debt ceiling looming again); U. S. Fed is signalling two (or possibly three) hikes over the next 6 months and (even more importantly) no willingness to restart buying Treasuries again; U. S. political risks are rising, not abating, and (equally important) these risks are now evolving faster than global geopolitical risks (the hedge’ is becoming less ‘safe’ than the risks it is supposed to hedge);

    This post was published at True Economics on Saturday, June 10, 2017.

  • We Just Had A Bank Bail-In, Anyone Paying Attention – Episode 1300a

    The following video was published by X22Report on Jun 7, 2017
    Retail sales are down in the UK, inflation rising and spending is down. Sears is closing another 66 stores and the retail apocalypse take hold. Older Americans need to work because of zero interest rates, inflation and the devaluation of the dollar, by doing this the younger generation is finding it hard to find those part-time jobs. The stock market is repeating what we saw back in 2000 and 2006, and we know how that ended, in a crash of the market and a recession. Spain’s Banco Popular just did a bail-in and it was purchased by Santander. China signaled they were going to purchase Treasuries and this might have been agreement that Trump made during the meeting with Xi Jin Ping.

  • Bond Yields Tumble To 2017 Lows After China Said “Ready To Buy More US Treasuries”

    Confirming what we reported two weeks ago, when we said that based on Treasury custody holdings at the NY Fed “foreign central banks have been quietly scooping up US treasurys“, moments ago Bloomberg reported that China is prepared to increase its holdings of U. S. Treasuries “as officials judge the assets are becoming more attractive than other sovereign debt and as the yuan stabilizes.”
    Citing source, Bloomberg adds that Chinese policy makers expect that U. S. government debt will be more attractive compared with other countries’ assets, and again confirming what we showed on May 25, adds that China has recently stopped reducing its holdings of U. S. bonds.
    While the move is a reverasal to China’s liquidation of US paper in 2016, when reduced its ownership of Treasuries by the most on record as it sought to defend a weakening yuan, it merely confirms recent trends observed in both the Treasury’s TIC statement and custody holdings data. Bloomberg confirms as much, reporting that “China has since changed strategy, adding to its holdings in the two months through March.”
    Following the Bloomberg report, the 10Y Treasury yield dropped to a new YTD low of 2.136%, while the 5Y has slid to 2017 lows of 1.6909%.
    For those who missed it, here are excerpts from our May 25 report titled “Foreign Central Banks Are Quietly Scooping Up US Treasurys“, which previewed all that Bloomberg just reported.
    As the latest custody data from the Fed reveals, in 2017, debt held at the Fed on behalf of foreign central banks has jumped by $61.2 billion to $2.922 trillion, the highest level since June 2016.

    This post was published at Zero Hedge on Jun 6, 2017.

  • Debate: Will Shrinking the Fed’s Balance Sheet Crash the Markets?

    Following the 2008 financial crisis, the US Federal Reserve purchased trillions in toxic debt and US treasuries in order to restore confidence in the banking system.
    Academics referred to this multi-year process as quantitative easing or QE, but it was more commonly thought of as money printing, with many fearing that it would lead to hyperinflation, a collapse of the dollar, and skyrocketing gold prices.
    Though these worst-case scenarios failed to materialize, fears over hyperinflation have now been replaced by hyperdeflation (or, simply, a market crash) as the Fed engages in so-called ‘quantitative tightening,’ simultaneously raising rates while allowing their balance sheet to shrink back to normal, pre-crisis levels – something that may begin as early as this year.
    With the more popular bearish view getting louder in recent months and Financial Sense listeners emailing us in response, we decided to get Matthew Kerkhoff’s take on this debate since he correctly explained to our audience many years ago why QE wouldn’t lead to hyperinflation.
    Kerkhoff is a long-time contributor at Dow Theory Letters and the Chief Investment Strategist at Model Investing. Here’s what he had to say…

    This post was published at FinancialSense on 06/05/2017.

  • The US Unemployment Rate Is Now Below The Average Recession “Entry Point”

    Submitted by Eric Hickman of Kessler Companies
    We have begun to see the ‘event-horizon’ (Lance Roberts) of an economic slowdown in several indicators. Adding to that, and counter-intuitively perhaps, an unemployment rate this low (4.29%) is a signal to run-away from Stocks and run-to Treasuries.
    Historically, unemployment rate lows have occurred at, or very near-to, market inflection points preceding recessions (see green and red hash marks in chart below). The unemployment rate just released on 6/2/2017 at 4.29% is now just below the average unemployment “entry prior” to recessions over the last 67 years, at 4.4%.

    This post was published at Zero Hedge on Jun 3, 2017.

  • The Implications of Quantitative Tightening

    The secret’s out. The Fed wants to shrink the size of its balance sheet, and they want to begin the process sometime this year. What does this mean for investors? And what does it mean for key variables such as interest rates, inflation, and economic growth? Let’s find out.
    For those who may not recall, in the midst of the financial crisis, the Fed embarked on a bond-buying spree known as quantitative easing. This process involved the purchase of trillions of dollars’ worth of long-term Treasuries and mortgage-backed securities in an attempt to 1) suppress long-term rates, 2) inject liquidity into the financial system and 3) remove toxic assets from the balance sheets of public and private institutions.
    Quantitative easing was phased out in 2014 but has left the Federal Reserve holding a massive $4.5 trillion balance sheet. This portfolio of bonds has remained steady in recent years as the Fed continues to roll over maturing Treasuries and reinvest the principal payments from the mortgage-backed securities.
    In a recent commentary, the Fed has made it clear that it now wishes to begin the ‘unwinding’ of its balance sheet, effectively relinquishing most of these assets back into the marketplace. This process has been dubbed ‘quantitative tightening,’ and will represent another foray by the Federal Reserve into uncharted monetary waters.

    This post was published at FinancialSense on 05/31/2017.

  • The Fed Is About To Hike: Why That Is Bullish For Bonds

    With the market pricing in near certainty of a June rate hike despite the Fed’s tacit warning that it would like to see evidence the recent economic slowdown is over, a recurring question among trading desks is why aren’t long-dated bonds selling off more, or rather why is the 10 and 30Y seemingly bid the closer we get to the next Fed hike with everyone – from hedge funds, to central banks to primary dealers – buying in surprising amounts.
    Overnight, an answer came from Wes Goodman, a Bloomberg columnist, who explains that the more the Fed hikes, the more bullish it is for bonds, i.e., the entire market is once again betting on “policy error” by the Fed.
    Here is latest Macro View note titled “The Fed Is Going to Hike. That’s Bullish for Bonds“
    The Fed’s likely rate hike next month will probably send Treasury yields lower, and investors from hedge funds to banks are loading up on U. S. government debt ahead of the move.
    Contrary to conventional wisdom, Treasuries have rallied following the last three rate increases. Instead of sending yields higher, the hikes are driving speculation that rising short-term borrowing costs will curb the economic expansion and make it tougher for the Fed to sustain its 2% inflation target.

    This post was published at Zero Hedge on May 30, 2017.

  • Greek, Italian Risks Weigh On European, Global Markets; Oil, Gold Slide

    Tuesday’s session started off on the back foot, with the Euro first sliding on Draghi’s dovish comments before Europarliament on Monday where he signaled no imminent change to ECB’s forward guidance coupled with a Bild report late on Monday according to which Greece was prepared to forego its next debt payment if not relief is offered by creditors, pushing European stocks lower as much as -0.6%. However the initial weakness reversed after Greece’s Tzanakopoulos denied the Bild report, sending the Euro and European bank stocks higher from session lows. S&P futures are fractionally lower, down 3 points to 2,410.
    Elsewhere, the Japanese yen rallied after strong retail sales data while US Treasuries ground higher after returning from a long weekend largely unchanged; Australian government bonds extend recent gains as 10-year yield falls as much as four basis points to 2.37%. Asian stock markets and were modestly lower; Nikkei closed unchanged despite a stronger yen. China and Hong Kong remained closed for holidays while WTI crude was little changed.
    Despite the rebound, the Stoxx Europe 600 Index declined a fourth day as data showed that contrary to expectations of a record print, euro-area economic confidence fell for the first time this year, and as Draghi’s dovish comments to the European Parliament weighed on banking shares. As discussed yesterday, Italian bonds edged lower as traders digest the prospect of an earlier-than-expected election.

    This post was published at Zero Hedge on May 30, 2017.

  • Another Rigged Market: Scientific Study Finds Systemic VIX Auction Manipulation

    To the list of ‘rigged’ markets (e.g. Libor, FX, Silver, Treasuries…) we can now add VIX (which explains a lot) as two University of Texas at Austin finance professors find “large transient deviations in VIX prices” around the morning auction, “consistent with market manipulation.”
    As Bloomberg reports, in addition to being an index that is much quoted in articles about market complacency, the VIX is used as a reference price for derivatives: If you want to bet that stock-market volatility will go up, or down, you can buy or sell futures or options on the VIX. These products are cash settled: The VIX is not a thing you can own, so if your option ends up in the money you just get paid cash for the value of the VIX at settlement.

    This post was published at Zero Hedge on May 25, 2017.

  • The Setup Is Almost Complete,Once The Fed Does This,The Collapse Is Imminent – Episode 1289a

    The following video was published by X22Report on May 25, 2017
    If Canadian homeowners saw a 10% increase in mortgage payments 75% of those surveyed said it would be very difficult and many would not be able to pay. Sears says it had its first profit in 2 years, the only problem there was no profit. There are roughly 230 million getting handouts from the government . Two researchers have discovered that the VIX is rigged. Foreign central banks are silently acquiring Treasuries and having the FED hold them. The Fed needs only do 1 more interest rate hike which will start the collapse of the economy.

  • RBC Explains What The Hell Is Going On: “Prudent” Fed & Chinese Intervention

    A “prudent” Fed (and China’s “National Team”) have spurred a risk-on rally, as RBC’s head of cross-asset strategy Charlie McElligott notes the market’s ‘Pavolovian’ response to Fed’s ‘dovish hints’ contained within the Minutes – despite simultaneously staying ‘on message’ with hiking / tapering commentary – prompts a “QE of old” response: stocks and Treasuries bid, while the USD faded.
    China further perpetuates the ‘risk rally’ via apparent market interventions:
    1. Intervention in FX markets to strengthen the Yuan overnight, with speculation of a number of Chinese banks selling Dollars in the onshore market overnight which drove the Yuan higher.
    2. Chinese ‘National Team’ stock market inventions as well, with sharp-turns higher off of an initially weaker equities opening and again-weaker industrial metals. Major reversals off lows saw nearly all domestic markets close at highs (Shanghai Prop +2.8%), while Hong Kong’s Hang Seng closed at highs since July 2015, with Chinese real estate developers leading.
    Initial (and expected) ‘sell the news’ on the snoozer OPEC outcome, as they extend the output cut 9 months per expectations – which disappointed the ‘bullish surprise’ camp which anticipated more OPEC-‘gaming’ of the market, thinking it was possible for a deeper-cut in conjunction with the consensus extension.

    This post was published at Zero Hedge on May 25, 2017.