When does the yield on US Treasuries blow out?

[Bushman]

When does the 'flight to safety' stop? US treasury yields still hold up. How long until subprime morphs into a full-blown currency crisis? Surely, at some point, the thought that the Yanks could default on their debt must enter investor's heads. I am not saying they will default - personally I think the US has the weight in numbers and existing financial infrastructure to see this through.

But yield is a measure of risk and the more the Yanks bail out Wall Street, buy commercial paper and raise overall US debt (vs GDP and tax revenue), the risk of default is higher and this the yield must rise!

It is just foolishness on the part of the US investor to simply trust US treasuries as a 'safe haven'.

Good news for the price of gold!!


From The Age:

To sovereign risk: will the bond market crack?

A 30-year graph of the US 30-year Treasury bond shows a generational bull-market. The yield on the bellwether bond peaked at 15% in 1981 and has been in decline ever since, rallying that is (bond prices are the inverse of yields). It now stands at 4%.

The ``flight to quality'' in the present cycle fuelled the recent demand. Realistically though, given the parlous state of the US economy and banking system, is 4% enough risk premium for owning an asset whose principal may never be repaid?

The interest burden is enough, especially in light of the looming recession, pressure on tax receipts, record consumer debt and a deficit approaching $US1 trillion. The American empire is in terminal decline.

Risky investment

Ask yourself, if the US were a company, would you invest in it? The management isn't exactly inspiring, let alone the numbers.


Yet the question must be asked: when confidence and trust are shattered will lowering rates bring borrowers back to the market?

 

[Bushman]

Ex-Goldman Chairman John Whitehead worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Ha. Then again the flight to USD is still well established so the old world order of capitalism still plays out. Time will tell.

'Remember former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression." See previous Paul B. Farrell.
He worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Politicians and public are delusional, promising huge new programs plus tax cutting: "This is a road to disaster.' Like Sartre's existential tragedy, "No Exit," he says: "I don't see a solution." '
(source: Marketwatch, Farrell column. He is one 'doom & gloom' merchant that one but has the odd useful snippet amongst the prozac and bourbon.)

 

[Aussiejeff]

Ex-Goldman Chairman John Whitehead worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Ha. Then again the flight to USD is still well established so the old world order of capitalism still plays out. Time will tell.

'Remember former Goldman Chairman John Whitehead? He "sees" a tragic ending: This Reagan Deputy Secretary of State and former New York Fed chairman "sees" America burning through trillions, over many years: "Nothing but large increases in the deficit ... worse than the Depression." See previous Paul B. Farrell.
He worries that "tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds." Politicians and public are delusional, promising huge new programs plus tax cutting: "This is a road to disaster.' Like Sartre's existential tragedy, "No Exit," he says: "I don't see a solution." '
(source: Marketwatch, Farrell column. He is one 'doom & gloom' merchant that one but has the odd useful snippet amongst the prozac and bourbon.)

This is why the Fed (and it's sycophants) are now pushing the rumour that they have "UNLIMITED" funds to handle the crisis.

Obviously, the debt can now grow to an unlimited / infinite size because the Fed has unlimited / infinite resources to fund that debt.

Game over if you are a True Believer. Let the Big Boom Balloon rise....

:bananasmi

 

[sinner]

Hi guys,

What a contrarian thread! lol

The rally in USD and JPY will stop when deleveraging ends. When redemptions and margin calls and credit lines end people will be able to stop liquidating their assets to buy USD to pay their bets. The same applies to JPY and the yen carry trade.

Have some charts

and here is my favorite all time chart from this crisis: the cost to insure US Treasuries against default (I didn't include the CDS for US commercial real estate as you'd probably have an aneurism just looking at it)

EDIT: In relation to the last chart, pretty interesting to note the July spike in 10 year CDS spread was causing contrarians to run for the hills...now that spike just looks like childs play!

 

[c-unit]

haha some classic charts there sinner. Shows the confidence everybody has in the US treasury

 

[Bushman]

Its going mainstream...the so called 'bond bubble'. He he. Tick tock. Maybe deflation will save the Treasurites (in God and the USD we trust); I doubt it. Deleverage away busy beavers.

Then again, as another poster put it so succinctly, it is just another 'opinion piece'. This whole confidence sapping debacle has just been one opinion piece after another sapping away confidence. Now the pidgeons are coming home to roost big time. 500,000 odd unemployment in the US. Trilliobs being printed and pumped. The great deflationary vs inflationary arm-wrestle. If you bet on history, then inflation will win eventually. Then watch out the 'bond bubble'. Once again, good for gold.

http://business.theage.com.au/business/markets/the-bond-bubble-20081208-6td7.html

 

[explod]

In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. Three weeks ago, on October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies. That situation was reversed with the onset of savage global deleveraging which is still going on. How much longer? Watch the US Dollar exchange rates. And watch US Treasury yields

Posted this up yesterday on the Gold thread (and courtesy the Privateer Newsletter) but more appropriate here. Find it had to get my head around the T bonds, reading up but as I have never considered them before trying to see how it all fits.

Great thread Bushman. We will be keen on movements soon.

 

[arco]

EW Count if its any help

http://blog.afraidtotrade.com/wp-content/uploads/120708-0313-notes11.png

http://blog.afraidtotrade.com/wp-content/uploads/120708-0313-notes21.png

 

[acouch]

of interest
ac

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25295086

 

[Stormin_Norman]

great graphs sinner. shows why gold will come into its own and the USD will tank later in the year i think.

the bond bubble has to burst. it cant stay the current way....can it??

 

[Stormin_Norman]

U.S. Treasuries prices fell steeply early on Monday, extending the previous session's sell-off on prospects for a swelling supply of government debt that will be underscored by auctions this week.

Despite the tentative sell-off in ultra-short dated government securities, deep-seated fears about the crippling blow the global financial crisis is dealing to the world economy could swiftly reignite a flight-to-quality stampede.

That mass buying last year lifted Treasuries to their strongest performance since 1995.

http://www.forexfactory.com/news.php?do=news&id=142532

 

[Bushman]

.

the bond bubble has to burst. it cant stay the current way....can it??

All bubbles burst eventually .... that is the one thing I do know. See 'US housing market' for a topical example. It took longer than some expected but pop it went.

Treasury has expanded its balance sheet exponentially over the last three months post Lehman. They do not want deflation, they do not want a 'flight to safety, they want to save the US empire! It is a basic demand, supply and risk scenario and it is a fricken time bomb for those long treasuries.

My 2c...

 

[Aussiejeff]

All bubbles burst eventually .... that is the one thing I do know. See 'US housing market' for a topical example. It took longer than some expected but pop it went.

Treasury has expanded its balance sheet exponentially over the last three months post Lehman. They do not want deflation, they do not want a 'flight to safety, they want to save the US empire! It is a basic demand, supply and risk scenario and it is a fricken time bomb for those long treasuries.

My 2c...

... of the Nuclear variety....

 

[Stormin_Norman]

so what will happen when that bubble bursts?

 

[Bushman]

so what will happen when that bubble bursts?

Bye bye USD, US bail-out (should be called the China, Russia, Middle East bail-out as they are they debtors) etc, etc.

As you say, good for precious metals.

 

[Stormin_Norman]

ill write up a scenario when i get the time (im a monetary economist). just wanted to hear other's thoughts on what potential effects the collapse might have.

 

[Stormin_Norman]

That flank is the bond market. With the supply of dollars and dollar-denominated debt set to explode, you'd expect the appetite for U.S. bonds to fall. And yesterday, it began to do just that. In December, 30-year U.S. bond yields were hovering at 2.51%. By the close of yesterday's action, they were above 3%.

the daily reckoning.

a bubble is when something rises above what could ever possibly be considered 'sensible'. what could keep the bond yields down? fed buying perhaps?

 

[amory]

the daily reckoning.

a bubble is when something rises above what could ever possibly be considered 'sensible'. what could keep the bond yields down? fed buying perhaps?

wasn't it the general understanding that it's all the other countries are buying US bonds? so much so that where 'flight into security' is concerned, the Bonds were well in front of the POG, for quite some time.

it is a bit of a riddle, because Bonds are backed by the Dollar which, as we all know, is supposed to be heading for disaster.

 

[Bushman]

wasn't it the general understanding that it's all the other countries are buying US bonds? so much so that where 'flight into security' is concerned, the Bonds were well in front of the POG, for quite some time.

it is a bit of a riddle, because Bonds are backed by the Dollar which, as we all know, is supposed to be heading for disaster.

Its easy to me - those countries need the US to recover in the short-term. It is the great nation-building game -
1. Make cheap white goods to sell to the US consumer;
2. Increase foreign currency reserves;
3. Use foreign currency to buy US-gov't treasuries;
4. Treasuries used to build money supply in the US, ending up as debt in the pocket of the American consumer.
5. Repeat ad infinitum.

So those foreign debtors needs 'Joe Average' to be under the illusion that increased money supply is actually wealth in his pocket, meaning he will buy the tripe that is fuelling the third world's nation building.

This is what pulled Japan out of being bombed into oblivion after all - selling consumer trinkets to the Yanks. When they became 'wealthy', they passed the industrial baton to the Chinese.

Question is, what happens when China becomes 'wealthy' (assuming resources don't run out in the process)? Maybe the baton will then pass to the Africans?

 

[amory]

Bushman:
<< 2. Increase foreign currency reserves;
3. Use foreign currency to buy US-gov't treasuries; >>

isn't it then reasonable to assume that China or whoever else is pursuing this policy, wouldn't be the least bit interested in dumping treasuries &/or the dollar? even if the yield goes down to zero, which is unlikely.

in that case, the US can go on printing money ... ad infinitum as you put it ... without endangering the dollar unduly. the Fed seems to rely on it.