• Tag Archives Treasuries
  • The Death Of Petrodollars & The Coming Renaissance Of Macro Investing

    The petrodollar system is being undermined by exponential growth in technology and shifting geopolitics. What comes next is a paradigm shift…
    In the summer of 1974, Treasury Secretary William Simon traveled to Saudi Arabia and secretly struck a momentous deal with the kingdom. The U. S. agreed to purchase oil from Saudi Arabia, provide weapons, and in essence guarantee the preservation of Saudi oil wells, the monarchy, and the sovereignty of the kingdom. In return, the kingdom agreed to invest the dollar proceeds of its oil sales in U. S. Treasuries, basically financing America’s future federal expenditures.
    Soon, other members of the Organization of Petroleum Exporting Countries followed suit, and the U. S. dollar became the standard by which oil was to be traded internationally. For Saudi Arabia, the deal made perfect sense, not only by protecting the regime but also by providing a safe, liquid market in which to invest its enormous oil-sale proceeds, known as petrodollars. The U. S. benefited, as well, by neutralizing oil as an economic weapon. The agreement enabled the U. S. to print dollars with little adverse effect on interest rates, thereby facilitating consistent U. S. economic growth over the subsequent decades.

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

  • Doug Noland: Arms Race

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    Bloomberg: ‘Treasuries Surge as December Hike Odds Drop After CPI Miss.’ Year-over-year CPI was up 2.2% in September, with consumer inflation above 2% y-o-y for six of the past 10 months. The Producer Price Index gained 2.6% y-o-y in September. Yet, apparently, the focus will remain on core CPI (along with core personal consumption expenditure inflation) that, up 1.7% y-o-y, missed estimates by one tenth and remained below 2% for the sixth straight month. Notably – analytically if not in the markets – the preliminary October reading of University of Michigan Consumer Confidence jumped six points to the high since January 2004. Or taking a slightly different view, Consumer Confidence has been stronger for only one month in the past 17 years. Current Conditions rose to the highest level since November 2000.
    Data notwithstanding, from Bloomberg: ‘Bond Shorts Experience the Agony of Defeat Yet Again.’ Ten-year Treasury yields declined nine bps this week to 2.27%, though I’m not sure this qualifies as a ‘defeat.’ In stark contrast to the fanatical gathering on the opposing side of the field, not a single central banker was spotted on the bond bears’ sideline.

    This post was published at Wall Street Examiner by Doug Noland ‘ October 14, 2017.

  • Active Bond Traders Have Never Been More Short Treasurys: Is A Squeeze Imminent?

    Yesterday, when discussing Crispin Odey’s letter to clients and what appears to be his “Hail Mary” trade, we pointed out that according to his latest client letter, the billionaire hedge fund manager has effectively bet everything on a plunge in bond prices, with a whopping 135% net short in gilts and JGBs.
    We noted that, in light of recent shifts mostly among the CTA and hedge fund crowd, he is hardly alone in his mega bearish outlook on bonds.
    Sure enough, according to the latest JPMorgan survey (for the week through Oct. 2) the bank’s clients as a whole have dramatically soured on Treasuries, with 44% holding a short position relative to their benchmark, the most since 2006, or before the financial crisis, and up from 30 percent in the prior period. Among those who actively place bets, such as speculative accounts, a record 70% were short, while an unprecedented (and impossible) 0% responded that they were long: in other words, everyone is on the same side of the boat.

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

  • One Trader Warns Of “The True Danger Ahead”

    It’s easy for me to sit back and take pot shots at the hedge fund gurus calling for a repeat of the 2008 crash. Spouting words about markets never repeating the previous crisis is kind of cheap. If I am so sure history won’t repeat, why don’t I offer an alternative theory? Well, at the risk of embarrassing myself, here it goes.
    The biggest risk out there is not credit. It is not the monster short VIX speculative position. It is not CDX leverage.
    The true DANGER AHEAD lies in the universal belief that treasuries (and other sovereign fixed income) offer a perfect hedge versus risk assets.

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

  • Bond Traders Place Biggest Short in Treasuries Since Fed’s ZIRP and QE Began (Zirp The Surveyor)

    (Bloomberg) – After the worst losses for Treasuries in 10 months, investors are ramping up bets that the world’s largest bond market will decline further.
    A JPMorgan Chase & Co. survey for the week through Oct. 2 found that clients as a whole soured on Treasuries, with 44 percent holding a short position relative to their benchmark. That’s the most since 2006 and up from 30 percent in the prior period. Among those who actively place bets, such as speculative accounts, a record 70 percent were short.
    The shift shows how a confluence of factors is weighing on the minds of bond traders as the fourth quarter begins. The Federal Reserve will start unwinding its balance sheet this month, and Chair Janet Yellen has signaled that stubbornly low inflation won’t deter policy makers from tightening. Meanwhile, in the betting markets, former Fed Governor Kevin Warsh, seen by some traders as having a more hawkish tilt, has the highest odds to succeed Yellen.

    This post was published at Wall Street Examiner on October 3, 2017.

  • Stock Investors Should Brace for the Fed’s October Tightening Gambit

    September’s Federal Reserve meeting left interest rates unchanged but sounded a hawkish tone. The Fed seems intent on hiking interest rates again come December.
    Following Fed chair Janet Yellen’s remarks this Tuesday, interest rate futures markets bumped up the odds of a year-end rate hike to 81%.
    The more immediate – and perhaps more important – policy move pending from the central bank is its plan to gradually reverse its Quantitative Easing bond buying program starting in October.
    Yellen calls it ‘balance sheet normalization.’ She is right in acknowledging that there’s nothing normal about the $4.5 trillion balance sheet the nation’s currency custodian has built up following the financial crisis of 2008.
    Whether the Fed’s bond portfolio ever will get ‘normalized’ to pre-crisis levels will depend on how markets react to the Fed’s attempt at Quantitative Tightening beginning next month.
    The Fed technically won’t sell bond holdings into the market. Instead it will let bonds mature without rolling them over. The effect on the market will be as if a regular, reliable, very big customer stopped buying.
    Initially, the Fed will allow $10 billion in Treasuries and mortgage-backed securities to mature off its balance sheet per month. Over the next year, the pace of ‘normalization’ will accelerate. It is slated to eventually reach $50 billion per month.

    This post was published at GoldSeek on 29 September 2017.

  • Bond Trader Up $10 Million by Joining Bets Yield Curve Too Flat (Game of Drones)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Big futures trade adds to steepening momentum amid selloff.
    (Bloomberg) – Traders in the $14.1 trillion Treasuries market are signaling that the persistent flattening of the yield curve this year has gone far enough.
    The outperformance of longer-maturity debt has been a dominant theme in the market for months. Now, open interest data show investors are unwinding wagers that the slope of the yield curve from five to 30 years will fall, after it turned the flattest in nearly a decade.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ September 28, 2017.

  • Dollar Ends Best Week Of The Year With A Whimper As Global Stocks Push All Time Highs

    The dollar rally paused on Friday and looked poised to finish its best weekly gain of the year with a whimper, when in a repeat of the Thursday session the, Bloomberg dollar index first rose more than 0.1% during Asia hours before slumping around the European open as month and quarter-end flows came into play again.
    U. S. stock-index futures were little changed as investors awaited data on personal spending, which however is likely to be distorted by Hurricanes Harvey and Irma, while both European and Asian shares were in the green. European equities drifted higher, headed for the best month this year, while stocks in Asia also followed the S&P 500 higher earlier. Treasuries were steady after a selloff that saw yields jump 18 basis points this week, the most since Donald Trump’s U. S. election victory in November. Emerging-market assets rallied, with stocks rising and most currencies strengthening against the greenback.
    After an initial bout of euphoria over Trump’s tax plan – which still needs approval from Congress although it currently lacks detail, leaving investors guessing which parts of the package will be prioritized by the administration – the renewed “Trump trade” paused as profits were taken on some of the recent reflation trades. Though with the chances of higher U. S. interest rates by the end of the year now at about 65%, they have driven equities higher and taken money out of gold, which was on track for its worst month this year, suggesting that the Fed has once again failed to send a tightening message to markets.
    ‘Trump’s fiscal package continues to drive markets,’ said Societe Generale analyst Guy Stear. ‘U. S. bond yields have climbed both as a direct response to tax cut fears and as the market’s wider risk appetite returned.’ He said the sharp rise in 10-year Treasury yields, which hit a two-month high of 2.36% on Thursday, was driving the dollar higher.

    This post was published at Zero Hedge on Sep 29, 2017.

  • Blain: “The Bond Market Has Become A Series Of Crashes Followed By Rallies”

    Submitted by Bill Blain of Mint Partners
    Blain’s Morning Porridge – Why Bond markets are going down and Markets have no memory
    ‘And everything around her is a silver pool of light, the people who surround her feel the benefit of it. It makes you calm…’ Before delving into the collapse in global bonds on tightening speak, the improving prospects for real policy drivers and tax-cuts out of the US, wondering what the stock market is trying to tell us, and all the other madness likely to dominate our trading day.. I have to admit to an ever-so-slightly fuzzy head.
    I’m not a Chelsea fan, but one of my clients is. Since he didn’t have time for a trip to Madrid for last night’s game, we watched it at Stamford Bridge instead. Yep, a gang of us were the only people in the stadium last night (which, to be honest, is a most enjoyable alternative to being surrounded by a pack of ravening Chelsea fans!) Although I’m a closet Gunner, it was a marvellous evening – made better by the last kick of the ball victory! (And that is absolutely the last time ever, and I mean ever, I will ever write something nice about Chelsea! )
    Back in the real world, it’s a combination of the recent Yellen hawk-talk on a December hike and the prospects Trump will get his tax-cuts and modest reforms passed that have pushed down Treasuries and hiked up the dollar. Rest of global bond market is following in their wake on anticipated global recovery.

    This post was published at Zero Hedge on Sep 28, 2017.

  • Asset Managers Flip To Net Short on Treasuries As UST 10Y-2Y Curve Slope Falls Below 80 BPS

    Asset managers have flipped to net short on 10-year Treasury futures for the first time since November, according to CFTC data. The group reduced long positions the past three weeks after 10-year yields approached the 2 percent level in the lead-up to the September FOMC meeting.

    This post was published at Wall Street Examiner on September 25, 2017.

  • Will The Fed Really ‘Normalize’ It’s Balance Sheet?

    To begin with, how exactly does one define ‘normalize’ in reference to the Fed’s balance sheet? The Fed predictably held off raising rates again today. However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet ‘run off.’
    Here’s the problem with letting the Treasuries and mortgage just mature: Treasuries never really ‘mature.’ Rather, the maturities are ‘rolled forward’ by refinancing the outstanding Treasuries due to mature. The Government also issues even more Treasurys to fund its reckless spending habits. Unless the Fed ‘reverse repos’ the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system. I’m surprised no one has mentioned this minor little detail.
    The Fed has also kicked the can down the road on hiking interest rates in conjunction with shoving their phony 1.5% inflation number up our collective ass. The Fed Funds rate has been below 1% since October 2008, or nine years. Quarter point interest rate hikes aren’t really hikes. we’re at 1% from zero in just under two years. That’s not ‘hiking’ rates. Until they start doing the reverse-repos in $50-$100 billion chunks at least monthly, all this talk about ‘normalization’ is nothing but the babble of children in the sandbox. I think the talk/threat of it is being used to slow down the decline in the dollar.

    This post was published at Investment Research Dynamics on September 20, 2017.

  • Why This Time Is Different: “Fed Guidance Really Matters”

    From Bloomberg macro commentator Marc Cudmore
    Today’s Fed meeting is critical for all financial assets. A large part of the framework for how to trade the year ahead will be clarified between Wednesday’s statement, the dot plot and subsequent FOMC member speeches in coming days.
    Fed meetings are often overhyped, particularly by financial commentators. Don’t dismiss the hype this time. And because the Fed’s decision is so crucial for the path of FX and rates, every other asset hinges on the outcome by extension.
    It’s not that Fed guidance has never mattered before, but it’s vital now that we have moved beyond the data dependence that was the key theme for the last few years.
    Previously, those traders who believed in higher yields bought into the idea of inflation accelerating, whereas those who were most bullish Treasuries feared for the strength of the economy.

    This post was published at Zero Hedge on Sep 20, 2017.

  • Fed to Launch Quantitative Tightening – Should You Be Worried?

    Expectations are currently that the Federal Reserve will announce plans to begin unwinding its balance sheet this Wednesday. When you consider that the Fed currently owns around 29% of the market for mortgage-backed securities and 17% of the market for Treasuries, you might be tempted to scream OMG!
    But before you do, recognize that plans have been in place for this for quite some time, and the market has already had plenty of time to react. Not only that, but the Fed will continue to take the same ‘steady as she goes’ attitude that has been a hallmark of Janet Yellen’s time as Fed chair.
    Back in June, the Fed outlined how this process would likely unfold. They will begin by allowing $10 billion of assets ($4 billion of mortgages and $6 billion of Treasuries) to roll off the balance sheet each month. As time goes by, assuming the economy and financial markets don’t throw too big a fit, the roll-off amounts will continue to rise, up to a maximum of $50 billion per month.
    One thing that’s important to understand is that during this process, the Fed will not actually sell any bonds. Instead, they will simply allow bonds to mature, and not reinvest the proceeds. This means that the incremental effect to the mortgage and Treasury markets should be mild, and not represent the ‘severe tightening’ that some analysts are making it out to be.

    This post was published at FinancialSense on 09/19/2017.

  • The World Is Creeping Toward De-Dollarization

    The issue of when a global reserve currency begins or ends is not an exact science. There are no press releases announcing it, and neither are there big international conferences that end with the signing of treaties and a photo shoot. Nevertheless we can say with confidence that the reign of every world reserve currency has to come to and end at some point in time. During a changeover from one global currency to another, gold (and to a lesser extent silver) has always played a decisive role. Central banks and governments have long been aware that the dollar has a sell-by date as a reserve currency. But it has taken until now for the subject to be discussed openly. The fact that the issue has been on the radar of a powerful bank like JP Morgan for at least five years, should give one pause. Questions regarding the global reserve currency are not exactly discussed on CNBC every day. Most mainstream economists avoid the topic like the plague. The issue is too politically charged. However, that doesn’t make it any less important for investors to look for answers. On the contrary. The following questions need to be asked: What indications are there that the world is turning its back on the US dollar? And what are the clues that gold’s role could be strengthened in a new system?
    The mechanism underlying today’s ‘dollar standard’ is widely known and the term ‘petrodollar’ describes it well. This system is based on an informal agreement the US and Saudi Arabia arrived at in the mid-1970s. The result of this deal: Oil, and consequently all other important commodities, is traded in US dollars – and only in US dollars. Oil producers then ‘recycle’ these ‘petrodollars’ into US treasuries. This circular flow of dollars has enabled the US to pile up a towering mountain of debt of nearly $20 trillion – without having to worry about its own financial stability. At least, until now.

    This post was published at Ludwig von Mises Institute on September 20, 2017.

  • Why Is The BIS Flooding The System With Gold?

    A consultant to GATA (Gold Anti-Trust Action Committee) brought to our attention the fact that gold swaps at the BIS have soared from zero in March 2016 to almost 500 tonnes by August 2017 (GATA – BIS Gold Swaps). The outstanding balance is now higher than it was in 2011, leading up to the violent systematically manipulated take-down of the gold price starting in September 2011 (silver was attacked starting in April 2011).
    The report stimulated my curiosity because most bloggers reference the BIS or articles about the BIS gold market activity without actually perusing through BIS financial statements and the accompanying footnotes. Gold swaps work similarly to Fed report transactions. When banks need cash liquidity, the Fed extends short term loans to the banks and receives Treasuries as collateral. QE can be seen as a multi-trillion dollar Permanent Repo operation that involved outright money printing.
    Similarly, if the bullion banks (HSBC, JP Morgan, Citigroup, Barclays, etc) need access to a supply of gold, the BIS will ‘swap’ gold for cash. This would involve BIS or BIS Central Bank member gold which is loaned out to the banks and the banks deposit cash as collateral to against the gold ‘loan.’ This operation is benignly called a ‘gold swap.’ The purpose would be to alleviate a short term scarcity of gold in London and put gold into the hands of the bullion banks that can be delivered into the eastern hemisphere countries who are importing large quantities of gold (gold swaps outstanding are referenced beginning in 2010).

    This post was published at Investment Research Dynamics on September 18, 2017.

  • Debt Limit Gums Up Treasury’s Plan for Supply Bump as Fed Tapers

    (Bloomberg) – The U. S. Treasury has been planning for years how to deal with the funding gap set to open up when the Federal Reserve begins unwinding its $2.5 trillion hoard of the government’s debt.
    Now there’s a new wrinkle to prepare for, as the latest deal to extend the nation’s debt limit complicates matters for Treasury Secretary Steven Mnuchin just as the Fed is expected to unveil the start of its balance-sheet reduction.
    With the debt-cap suspension expiring Dec. 8, there’s a growing sense among investors and analysts that Treasury will have to slow or hold off on the inevitable – increasing note and bond sales to deal with the shift in Fed policy and rising federal deficits. Most strategists had predicted that long-term tilt toward more coupon issuance would start in November, so a delay may provide a boost for bond bulls betting yields can stay near historic lows.
    ‘The debt-limit issue will in the near-term affect what Treasury does with coupon issuance,’ said Gene Tannuzzo, a money manager at Columbia Threadneedle, which oversees $473 billion. ‘At the end of the day, Treasury will have to do a lot more coupon sales. On the margin, for now, if there is less coupon issuance it is a modestly positive technical’ for Treasuries.

    This post was published at Wall Street Examiner on September 18, 2017.

  • Market Talk- September 15th, 2017

    North Korea spooked markets yet again by launching a missile that reported flew over Japan, which came a day after North Korea claimed it would sink Japan. The events were short-livid however and after a brief flight to safety in gold, treasuries and the Yen markets quickly corrected back. The JPY traded into the low 110’s but by US trading had drifted into the 111’s. Gold did have a bid in Asian trading but by the late US session was testing $1320. The recovery had already taken place by the time Asia closed with the Nikkei closing in positive territory (+0.55%) with exporters and financials setting the pace. The Australian ASX closed down -0.8% led by industrials and miners. SENSEX and Hang Seng were both little changed but we saw a positive return for the core Shanghai index closing up +0.55% as the Yuan drifted again.

    This post was published at Armstrong Economics on Sep 15, 2017.

  • The Strippers: US Treasuries Held In Stripped Form Surging

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    US Treasuries securities held in stripped form has surged since May 2016. The Separate Trading of Registered Interest and Principal of Securities program, STRIPS, program is flourishing.
    Treasury strips can be either in coupon strip form or principal strip form. And the 30 year Treasury bond is the logical security to strip (30 years x 2 semi annual payments = 60 possible strips per type).

    This post was published at Wall Street Examiner on September 11, 2017.

  • Global Stocks Roar Back To All-Time Highs As Irma, North Korea Fears Fade

    And we’re back at all time highs.
    With traders paring back risk positions on Friday ahead of a weekend full of potential risk events, Monday has seen a global “risk-on” session in which global stocks rose back to record highs and US futures jumped, the dollar gained, Treasuries retreated, while VIX and dollar slumped as appetite for risk returned to global markets after North Korean failed to conduct an anticipated missile test failed to materialize and Hurricane Irma appears to have struck the U. S. with less force than feared. The MSCI All-Country World Index increased 0.3% to the highest on record with the largest climb in more than a week, while that “other” trade also outperformed, as the MSCI Emerging Market Index increased 0.4% to the highest in about three years. Safe havens such as the yen and Swiss franc all also fell.
    Amid the risk-on tone, the dollar registered its biggest gains in the currency markets in ten days. It added 0.5 percent against its perceived safe-haven Japanese counterpart the yen JPY and clawed back ground against the high-flying euro as an ECB policymaker flagged caution about the single currency’s recent rise.

    This post was published at Zero Hedge on Sep 11, 2017.

  • WHY KOREAN TENSIONS SHOULD SOON EASE – effect on Dollar and Precious Metals…

    The tensions centered on the Korean peninsula should soon ease, leading to a rally in the dollar and a (mild) reaction in Precious Metals and other commodities like copper, for reasons that we will consider in this essay.
    There can be no denying that what we have previously referred to as ‘The Empire’ is intent on world domination. The evidence is there for all to see in the form of a vast network of military bases spread across the globe, and a history of invasion of various countries by the Empire in recent years in pursuit of its geopolitical objectives. The economic engine that drives the Empire and supports its imperialistic ambitions is the dollar, whose Reserve Currency status means that infinite quantities of it (or proxy derivatives like Treasuries) can be printed up and swapped for goods and services with any and all countries around the world, and it is this dynamic that supports the formidable US military machine.
    The last Empire that tried to take over the world was Nazi Germany, which recruited Japan to take over the Far East, so that together they became a global axis. As we know this led to an enormous titanic struggle for over 5 years to contain it and defeat it, resulting in immense destruction and loss of life. The reason that Hitler failed was good old fashioned imperial overreach – he didn’t know when to ‘call it a day’ and consolidate his gains, instead he tried to do what has been the undoing of most Empires in the past, take over the entire planet. Actually he got very close to creating a sustainable 3rd Reich, but made several key mistakes. The first was not overrunning Britain while he had the chance, instead he made the fatal mistake of leaving it and starting a war on a second front with Russia, which meant that, in addition to his logistical support being spread too thin, the US was later able to use Britain as an aircraft carrier to bomb Germany back into the Stone Age, which needless to say resulted in its defeat. The second mistake was permitting eastern henchman Japan to bomb Pearl Harbor, and thus bring the US into the war against both Nazi Germany and Japan. Perhaps due to parochial ignorance, Germany and Japan made the catastrophic miscalculation that they could somehow overcome the United States, which at the time was an emerging economic powerhouse. The bombing of Pearl Harbor awoke the sleeping giant and meant the beginning of the end for the Germany – Japan Empire.

    This post was published at Clive Maund on Tuesday, September 05, 2017.