Posts tagged 'US Treasuries'

The illiquidity trap in Treasuries?

The Federal Reserve insists there is nothing wrong with the $14tn US government bond market (aside from the influx of pesky high-frequency trading firms). But an analyst at Bank of America Merrill Lynch has found more evidence that even mighty Treasuries have been affected by the liquidity crunch afflicting markets. Read more

On the hypothetical eventuality of no more petrodollars

Imagine the scenario. It’s 2025 and the volume of home-produced oil is so great that the US is near energy independent as far as crude imports are concerned.

With that energy independence, the amount of dollars flowing out of the US and over to net energy producers (and traditional dollar reserve hoarders) such as Saudi Arabia, Russia and Mexico has come crashing down.

So how would such a dollar-flow contraction affect the global economical and political balance?

According to Citi’s credit team, it would likely affect things a lot. Especially so in the credit markets. Though, what’s really interesting … they believe the effects of a petrodollar shortage may already be showing up in credit markets. Read more

It wasn’t QE that caused a collateral scarcity this summer

The Liberty Street Economics blog of the Federal Reserve Bank of New York provided a good analysis this week of the summer’s UST settlement fails spike.

For those unfamiliar, settlement fails in US Treasury securities rose to their highest level in more than five years in June, with DTCC figures reaching more than $1.2 trillion in gross fails for the month:

 Read more

Rotate, reflate, reflect, placate

Tech is down, Treasuries are up, stocks are flattish: whatever happened to asset rotation, great or otherwise?

For an answer, we turn to the flows as interpreted by Nikolaos Panigirtzoglou and team at JP Morgan, who have found that the bond selling of late last year has reversed:

non-bank investors appear to be responsible for most of this year’s bond rally of which retail investors were one. Neither speculative investors, who appeared to have increased their US rate shorts by $110bn duration-weighted YTD, nor banks who, driven by FX managers, sold USTs this year, appear to have caused this year’s bond rally.

 Read more

The FRRP is not enough

Gold has been rising steadily since the start of the year.

Given the US taper, this might seem counterintuitive, especially if you believe that “money printing” should always justify higher gold prices.

But, as usual, everything is relative. Read more

Liquidity is dead?

The interesting thing about this year’s US government shutdown/debt ceiling fiasco was the extent to which markets chose to ignore the chaos in Washington. Indeed, taper tantrum proved much more destabilising then the system’s brief flirtation with a self-made US default. (Perhaps because it was clear from the onset the bluff was not executable?)

Now that the threat is behind us (until next time), there is also a general perception that we got away from the episode relatively unscathed.

Alas, it was not necessarily so. Collateral markets did wobble. Read more

To shoot oneself in the foot, US Treasury style

Definition here. Read more

Guest post: Why the Fed is a marginal player in US debt (Updated)

This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.

Over the past few years some quarters of the financial commentariat have taken to describing the Federal Reserve’s asset purchases as the monetisation of US national debt, something which has given rise to all sorts of misguided fears about inflation and much else.

While the Fed certainly have been purchasing extensive amounts of government debt in the secondary markets it is perhaps misleading to assume that these markets would not otherwise be buoyant without such intervention. Read more

That spike in US treasury yields

It’s seriously pronounced. While in absolute terms the US 10 year benchmark is simply back at summer 2011 levels, the pace of deterioration since the beginning of May has not been seen in recent decades. Over the past week alone, yields have leaped 30 basis points. Read more

Return of the ‘D’ word

Bernanke’s last Humphrey-Hawkins speech has been pre-released (and his live testimony was due to begin at pixel time). Most analysts are noting the return of dovish sentiment, not to mention the explicit re-emergence of the “D” word: Read more

Treasury yields go up a bit

Treasuries exhibited some relatively sharp moves yesterday, with 10-year yields reaching 2.19 per cent this morning:

US yields May 29 YTD

In the bigger picture… maybe not quite a dramatic QExit-related panic: Read more

The US collateral shortage lives on

Scott E.D. Skyrm, repo specialist and author of an upcoming book on MF Global, presented an interesting repo chart on his blog this week:

As the chart shows, so-called GC repo rates are once again trading below the Fed Funds rate. Read more

A digital solution for the repo squeeze?

In March we noted that the US Treasury had issued a request for information on who is holding large positions in the 2023 US Treasury note, following reports that the issue was experiencing repo difficulties. Not only was the issue trading in negative territory in the repo markets, there were reports of significant fails.

As ever with repo markets, information was scarce. Given the risk-on sentiment at the time, this seemed strange. Read more

A 2023 US T-note squeeze?

A hat tip to John Kemp at Reuters for drawing our attention to this from the US Treasury on Friday:

WASHINGTON – The Treasury is calling for Large Position Reports from those entities whose reportable positions in the 0-3/4% Treasury Notes of September 2013 equaled or exceeded $2 billion as of close of business Wednesday, December 8, 2010. This call for Large Position Reports is a test. Entities with reportable positions in this note equal to or exceeding the $2 billion threshold must report these positions to the Federal Reserve Bank of New York.

 Read more

Are rates mispriced or are investors missing something?

The disconnect we’ve noticed between commodity fundamentals and forward rates appears to be popping up in other asset classes as well.

Priya Misra, rates strategist at Bank of America Merrill Lynch, makes a very interesting point on Friday about what she sees in her sector. Read more

Doubting the bull market in Treasuries is over…

US Treasuries are kicking up with the 10 year threatening to push through 2 per cent for the first time in quite a while. It’s a little bit of economic optimism — better data means more chances of Fed tightening.

Capital Economics did the needful and put voice to the idea that the bull rally in Treasuries might have further to run for all sorts of not very contrarian reasons (our emphasis): Read more

The return of negative US repo rates

Take note. This is an important observation from TD Securities, especially in light of all the talk that US Treasury/safe haven trades are dead in the water.

Our emphasis: Read more

First time in a while: 10 year Treasuries pierce 2 per cent

In case you missed the moment earlier on Monday, here’s the yield on US 10 year paper breaking through 2 per cent – albeit momentarily. At pixel the reading stood at 1.99… Read more

What’s bugging gold?

We made the case a few weeks ago that the gold price may have reached its choke level and that it was arguably capped from that point on. One good indicator of this, we noted, was the divergence between the gold price — which had been flat-lining for some time — and real interest rates.

It’s also hard to ignore gold’s reaction to the latest Fed announcement, which has been intriguingly bearish to say the least Read more

“China not a currency manipulator, everyone back to work”

Or if you prefer the US Treasury Department-ese version:

Based on the analysis in this report, Treasury has concluded that no major trading partner of the United States met the standards identified in Section 3004 of the Act during the period covered in the Report.

 Read more

A reason to be bullish short-term USTs

What we love about Bank of America Merrill Lynch’s ‘Liquid Insight’ team is that when they make calls on Treasuries and rates, they account for the impact of collateral markets and the repo effect — not to mention the general shortage of safe assets.

Take the following chart from their latest note: Read more

Why it doesn’t matter if China sells its USTs

Earlier this week Paul Krugman went out of his way to point out that if China stopped buying US bonds, it wouldn’t be the end of the world.

We wanted to come back to some of his points, because well, we think they are pretty good. Read more

China’s unprecedented liquidity injection

As we noted earlier, the People’s Bank of China is continuing to inject huge sums of liquidity into the monetary system via so-called “reverse repos” (the equivalent of conventional central bank repos elsewhere). According to Chinascope, the latest round of easing supplied a record Rmb220bn to the market in exchange for collateral.

The seven-day operation was priced at 3.40 per cent (Rmb150bn) while the 14-day operation was priced at 3.60 per cent (Rmb70bn). Read more

UBS tackles the negative yield puzzle

Low yields in the context of epic supply may baffle some people, but not UBS’s Chris Lupoli.

Lupoli, part of Global Macro Team, seems, if anything, to subscribe to our negative carry shift theory — the idea that a more permanent curve transformation may be under way. Read more

The other fiscal cliff issu(-ance)

Most of the fear of what might happen if the US goes over the proverbial fiscal cliff has concentrated on the size of the economic drag it would produce.

But as you might have guessed for a blog that has long worried about the effects of a decline in safe assets on trust in financial intermediation, shadow banking liquidity, collateral shortfalls in money markets, etc… we also think it’s important to look at what it would mean for the corresponding decline in US Treasury issuance. Read more

Will rates stay low, QE or no?

It was inevitable that the abysmal payrolls report last Friday would make louder the calls for another round of quantitative easing from the FOMC, which meets later this month.

QE can take various shapes, but we wanted to mention something about the specific idea of the Fed buying up more US Treasuries: as a few analysts have pointed out recently, there’s a pretty good chance that rates will stay low no matter what the Fed does. Read more

Debunking goldbugs

Goldbugs don’t just believe in the fundamentals of gold. They worship at the altar of gold.

The goldbug view represents a market philosophy, a doctrine and a belief-system. Read more

Trap door opens under US Treasury yields

1.697 per cent at pixel time. Worries about Europe, collateral crunching, people changing their minds about buying Facebook (which, by the way, priced at $38 a share)… take your pick.

China: once again a net buyer of US Treasuries

Hey, remember when China was net-selling US Treasuries and drawing down its FX reserves? …

That was so December 2011. This hasn’t been widely discussed in recent days amid the higher-profile news that Chinese growth in Q1 decelerated by less than expected and the RMB was allowed to trade in a wider band, but: Read more

A downTic in China’s holdings? Doesn’t matter

FT Alphaville has written plenty of “explainer”-type posts on the relative accuracy of the monthly Tics data — i.e. who holds US Treasuries — versus the annual revisions (listed below if you’re fantastically bored).

Since it’s late in the day and we’re feeling lazy, we’ll risk charges of navel-gazing and just quote ourselves from last year’s editionRead more