When does the yield on US Treasuries blow out?

[Bushman]

IMHO, it's too early to conclude that we will avoid a great depression experience.

Hard to pick a turning point that's for sure. I look at credit spreads as that's what brough on the 'great deleverage'. Showing 'green shoots' (if you look at LIBOR etc) but still a way to go.

If credit does not get out to enterprises that need to refinance then that spells further fuel to the deleverage-unemployment symbiotic relationship and that could then dip us into depression territory. But that would not necessarily be a 'great depression' and the risk of this decreases by the 'bail out' package. Hence the longer-term forecasts start predicting USD-inflation.

LOL; all I know is it is an interesting time to be an observer and participant in capital markets.

 

[MRC & Co]

If credit does not get out to enterprises that need to refinance then that spells further fuel to the deleverage-unemployment symbiotic relationship and that could then dip us into depression territory. But that would not necessarily be a 'great depression' and the risk of this decreases by the 'bail out' package. Hence the longer-term forecasts start predicting USD-inflation.

Completely agree with you Bush.

This bailout is effectively transfering debt from the consumer and private sector and into the hands of the Government (who we could say are ultimately the same difference).

However, the Government has the ability to inflate their way out of the problem. A global recession and low interest rates, in addition to US inflation, would actually decrease their debt. Add in a tanking USD and you could gain some kind of trade surplus down the tack.

For now, the big problem is IMO the current meeting with Tim and the Chinese. He needs to get them to keep their US bonds/treasuries and at the very least, hedge their USD exposure. This will allow yields to remain low, and encourage investment in real assets, consumption and production.

IF this meeting breaks down, you may just have a Barcelona style triumph Bush, with you being the MVP like Iniesta, as Treasuries and the USD will probably take a mammoth beating.

Just my opinion and probably plenty of mistakes.

 

[MRC & Co]

Looks like yesterday confimed the meetings went 'well'.

China buying into Morgan Stanley with billions and their other US aquisitions (HUMMER etc) are a big positive for the USD and faith in US Treasuries and QE.

A rally from here in both USD and Treasuries, before an eventual resumption of the downtrend IMO.

 

[GumbyLearner]

http://www.businessinsider.com/chinese-students-laugh-at-tim-geithner-2009-6

Chinese Students Laugh At Tim Geithner

In his first official visit to China since becoming Treasury Secretary, Mr Geithner told politicians and academics in Beijing that he still supports a strong US dollar, and insisted that the trillions of dollars of Chinese investments would not be unduly damaged by the economic crisis. Speaking at Peking University, Mr Geithner said: "Chinese assets are very safe." The comment provoked loud laughter from the audience of students.

 

[Bushman]

The comment provoked loud laughter from the audience of students.

...who then went and told their industrialist fathers to get out there and buy good 'ol Aussie hard assets.

 

[MRC & Co]

Still short those 30 years Bush? 10 year auction last night and it went TERRIBLE I would say. Can't imagine 30 years will be any better (tonight right?).

 

[MRC & Co]

Still short those 30 years Bush? 10 year auction last night and it went TERRIBLE I would say. Can't imagine 30 years will be any better (tonight right?).

Quickly on the 10 year auction. Bid/cover ratio at 2.62 so pretty good, but:

10-Year Treasury Note Auction Result Is In

And judging by the market reaction, it is not good. Both stock market and bond market are sinking deeper.

I frankly don't know what the traders were expecting, for them to get disappointed like this. The key numbers of the auction is posted in the right-hand column, next to this post. (Here's the original announcement.)

Foreign participation was slightly better than the last auction, and bid to cover ratio is also higher than the last. What spooked the traders may be the yield.

Over 46% of the auction was allotted at the high yield at 3.99%.

In the last auction, only 22% of the auction was allotted at the high yield. Right before the auction result announcement, 10-year note yield was 3.94%.

Higher foreign participation demanding the higher yield for the risk they are taking.... Hmmm, it looks like bond vigilantes are intensifying their attack.

http://ex-skf.blogspot.com/2009/06/10-year-treasury-note-auction-result-is.html

 

[MRC & Co]

Does this positive 30 year auction market a turning point over the medium-term or simply better fills to get short?

 

[Bushman]

Does this positive 30 year auction market a turning point over the medium-term or simply better fills to get short?

Turning point barring any more financial black swans IMO.

 

[sitk]

Is there any way for Australian investors to short US Treasuries directly? The US-traded ETF for 20+ Year Treasuries (TLT) has been impossible to short (no stocks available to borrow, even for US retail investors). CFD's and options exist, but they are short term (less than 1 year essentially) and this short Treaury play may take several years to play out. Also rules out UltraShort Treasury ETFs like TBT, due to their inability to track long term trends (they are essentially day 2x shorts only).

I personally think this play will be more profitable than a gold or commodities play in the long term, so I was looking for any way to directly access it as an Australian retail investor.

 

[MRC & Co]

Turning point barring any more financial black swans IMO.

Nice! The US CPI figures are a good boost for the trend too.

Sitk, that is the only ETF I know of to short US Tresuries on the long end of the curve, do you have any trouble now there is a rally in the US bond markets?

What do you mean by this part: "Also rules out UltraShort Treasury ETFs like TBT, due to their inability to track long term trends (they are essentially day 2x shorts only)."

Can't you just use the ETF and hold onto it for several years? What is the dau 2x shorts only part?

 

[sitk]

It's a well known fact in finance that leveraged (funds that promise to follow an index at double/triple etc. of the movement of the actual index) funds cannot track any index or other measure performance in the long term:

Please take a look at this article for an explanation, please look at the Seeking Alpha article entitled "Long Term Investors Should Avoid Leveraged ETFs" (I still have too few posts to be allowed to post links, sorry)

 

[matty2.0]

It's a well known fact in finance that leveraged (funds that promise to follow an index at double/triple etc. of the movement of the actual index) funds cannot track any index or other measure performance in the long term:

Please take a look at this article for an explanation, please look at the Seeking Alpha article entitled "Long Term Investors Should Avoid Leveraged ETFs" (I still have too few posts to be allowed to post links, sorry)

Correct. It has to do with the compounding effect. Whilst an index can move down -10% and then move up 10% with ease, a leveraged ETF cannot since the capital base has changed. If it goes down consistently then the etf will never track the index in a like-for-like fashion.

 

[Bushman]

I like the title of the article - 'Feeding the Beast'.

Lets see howe this record auction goes on the back of the 'green shoots'.

http://www.marketwatch.com/story/tr...a-record-amount-of-debt-2009-08-05?link=kiosk

 

[MRC & Co]

The link wouldn' load up on my computer bush

What does it moreorless say?

More big auctions I guess........they seem never ending.........though Japan can't be in any better state...............

 

[Timmy]

The link wouldn' load up on my computer bush

What does it moreorless say?

More big auctions I guess........they seem never ending.........though Japan can't be in any better state...............

MRC&Co - the text cut and pasted into document, attached - open with Word, Open Office, or Google Doc. It is in Word format at present.

 

[MRC & Co]

Thx Timmy. Pretty standard stuff.

Think if we get this equity pullback, bonds will get a risk averse bid anyways.

Reckon a short JGBs is a better play than USTs at this point. Perhaps a spread (after just unwinding a Bund-UST spread).......

 

[Naked shorts]

Think if we get this equity pullback, bonds will get a risk averse bid anyways.

I'm not too sure about this, its been said there is still plenty of money sitting on the sidelines in treasuries (just look at where they are now compared to before the crisis) and on any pull back all these funds will begin selling their treasury's and start buying into equities. This, imo, is a divergence that should be watched for.

 

[Bushman]

US 10-yr bond yields are back below 2.5%, nearing the record lows of the GFC.

So what do we think - are bonds are in bubble territory given the state of the US balance sheet or not?

Bubble or not, it as an almighty flight to a safe haven as investors fret about government debt default and the 'double dip' implications of this (see the Ireland downgrade over night).

For me, I am tipping upwards pressure to be placed on yields in 2011-2012 as the US government has another crack at reflating the US economy via quantative easing.

Market Snapshot (from Morgan Stanley Smith Barney):

• S&P500 down 1.5% to 1052
• Oil down 2.1% to $71.20/bbl
• Gold up 0.3% to $1230/oz
• US 10yr bond yield down 11bp to 2.49%• AUD/USD at 88.2c

 

[MRC & Co]

All aboard.

About 1000 other reasons to be short USTs right now along with other crosses to trade on fallout implications.........!

Unless the words, "we are going into QE2" come out of Bernankes mouth at Jackson hole, a lot of sneaky punters are looking for some UST shakeout! Just look at other long positioning IMM data, safe haven flows and yield differential sensitive crosses to figure out the rest!

If you don't understand the above, you shouldn't be trading this!