Unreported Bedlam In Treasuries Signals Massive Panic
Posted: Sun Dec 11, 2011 6:53 pm
The following article makes two major points: Tax collections have
fallen sharply, indicating a deeper recession than previously
estimated. And investors are buying only 4-week Treasuries, not
longer-term Treasuries. With a large Treasury sale scheduled for next
week, we may be close to a panic situation.
Unreported Bedlam In Treasuries Signals Massive Panic
December 11, 2011
By Lee Adler
Last week was a light auction week with a net of just $3 billion in
new supply settling on Thursday. That took the pressure off stock and
bond prices. The fact that neither market could mount a sustained
rally suggests that markets are weak. Stocks and bonds gyrated wildly
but in the end remained in a tight range, in spite of all the bullish
ballyhoo in the media. You would have thought that the Europeans saved
the world on Friday. I don’t think so, and within the data there’s
plenty of reason to continue to be concerned, if not scared shitless.
Withholding tax collections remain weak and the government had to
raise $9 billion (11%) more than forecast last week. Next week the
overshoot will be around $13 billion. That means that the economy is
significantly weaker than government forecasters had foreseen just 5
weeks ago when these estimates were issued. The clues were available
in the data at that time and I correctly guessed that the auctions
would begin to balloon in size.
At the same time, foreign central bank purchases of Treasures are
falling off a cliff again. But the markets aren’t paying attention or
have not noticed these negatives because they have not had to. Massive
tidal waves of panic capital flight have been overwhelming the
Treasury market in never before seen numbers. The indirect bid
tendered on the 4 week bill last week was a mind blowing $61.8
billion, or 5 to 10 times the norm! Even more startling, Primary
Dealers (PDs) bid $268 billion on that issue. That’s over a quarter
TRILLION! One third of the PDs are foreign banks. Seven of them are
European banks. Is something rotten in Denmark, Brussels, Rome, and
Paris? You bet your bippy.
Notably, the panic buying was limited to the 4 week bill. The indirect
bid was weak on the 13 and 26 week bills. This is short term cash
looking for a safe place to park, not long term investable funds. It
remains to be seen if this panic will slosh over into longer term
Treasuries. With the 10 year at a major inflection point near a yield
of 2.10, the big week of auctions ahead could provide a watershed
moment. If the 10 year moves above 2.10, the wheels could be coming
off, with untold chaos immediately ahead. On the other hand a drop
back toward the lows might buy a little more time, but not much else.
If yields do move above 2.10, the other thing to watch is whether
stocks rally with that move or begin to decouple from the lockstep
risk on/risk off perception where falling yields signal risk off and
falling stock prices, and vice versa.
http://wallstreetexaminer.com/2011/12/1 ... ive-panic/
fallen sharply, indicating a deeper recession than previously
estimated. And investors are buying only 4-week Treasuries, not
longer-term Treasuries. With a large Treasury sale scheduled for next
week, we may be close to a panic situation.
Unreported Bedlam In Treasuries Signals Massive Panic
December 11, 2011
By Lee Adler
Last week was a light auction week with a net of just $3 billion in
new supply settling on Thursday. That took the pressure off stock and
bond prices. The fact that neither market could mount a sustained
rally suggests that markets are weak. Stocks and bonds gyrated wildly
but in the end remained in a tight range, in spite of all the bullish
ballyhoo in the media. You would have thought that the Europeans saved
the world on Friday. I don’t think so, and within the data there’s
plenty of reason to continue to be concerned, if not scared shitless.
Withholding tax collections remain weak and the government had to
raise $9 billion (11%) more than forecast last week. Next week the
overshoot will be around $13 billion. That means that the economy is
significantly weaker than government forecasters had foreseen just 5
weeks ago when these estimates were issued. The clues were available
in the data at that time and I correctly guessed that the auctions
would begin to balloon in size.
At the same time, foreign central bank purchases of Treasures are
falling off a cliff again. But the markets aren’t paying attention or
have not noticed these negatives because they have not had to. Massive
tidal waves of panic capital flight have been overwhelming the
Treasury market in never before seen numbers. The indirect bid
tendered on the 4 week bill last week was a mind blowing $61.8
billion, or 5 to 10 times the norm! Even more startling, Primary
Dealers (PDs) bid $268 billion on that issue. That’s over a quarter
TRILLION! One third of the PDs are foreign banks. Seven of them are
European banks. Is something rotten in Denmark, Brussels, Rome, and
Paris? You bet your bippy.
Notably, the panic buying was limited to the 4 week bill. The indirect
bid was weak on the 13 and 26 week bills. This is short term cash
looking for a safe place to park, not long term investable funds. It
remains to be seen if this panic will slosh over into longer term
Treasuries. With the 10 year at a major inflection point near a yield
of 2.10, the big week of auctions ahead could provide a watershed
moment. If the 10 year moves above 2.10, the wheels could be coming
off, with untold chaos immediately ahead. On the other hand a drop
back toward the lows might buy a little more time, but not much else.
If yields do move above 2.10, the other thing to watch is whether
stocks rally with that move or begin to decouple from the lockstep
risk on/risk off perception where falling yields signal risk off and
falling stock prices, and vice versa.
http://wallstreetexaminer.com/2011/12/1 ... ive-panic/