The American Bond Crisis

[qwerty]

Why buy protection on Treasuries anyway?

I'm sure there's an arcane technical reason for the existence of credit default swaps on treasuries, but at first take I have to wonder.

If the US Government defaults, what sort of state is the seller of the credit protection going to be in? LOL

[jimmygu3]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Like I said, think. Under what circumstances would it benefit you to hold 0% 30 year T-bonds...

I know the answer, do you?

T-bonds at very low rates would be attractive if you were expecting long-term dollar price deflation. However I see no advantage to holding 0% T-bonds vs holding cash. In the event of rising rates and/or inflation, cash could be invested or spent. 0% bonds would fall like a rock.

But then again, I am not a shadowy, Yoda-like know it all.... :rolleyes:

[Sapiens]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

But then again, I am not a shadowy, Yoda-like know it all.... :rolleyes:

Ah, too bad for you...

[randallriggs]

Re: The American Bond Crisis

The bond yield is the left part of the chart, not the right. That's CPI-U.

[Slimprofits]

Re: The American Bond Crisis

I'm going to watch the video of the hearing that took place yesterday later on, but here is a summary from the Boston Globe:

State officials contend the three biggest ratings agencies - Standard & Poor's, Moody's Investors Service, and Fitch Ratings - have cost taxpayers billions in added interest and bond insurance charges by holding municipalities to higher standards than corporations.

If the same rating scale were used for both corporate and municipal markets, most muni bonds would have a high enough credit rating that insurance wouldn't be necessary, Frank said.

The hearing was prompted by a campaign led by California Treasurer Bill Lockyer to change the way bonds are rated.

In a March 4 letter to Moody's, S&P, and Fitch, signed by 11 state treasurers and four other municipal and state issuers, Lockyer claimed that municipalities "have paid enormous sums to buy bond insurance."

They have "stolen billions, if not trillions, of taxpayers dollars from their pockets," said Representative Michael Capuano, Democrat from Massachusetts.

Part of the problem flows from the agencies' dual credit-rating system that appears to have saddled state issuers of municipal bonds with a high-risk rating.

Municipal bonds, which have traditionally been considered one of the safest investments, are more likely to receive a rating lower than triple-A, unlike corporate bonds, Lockyer said in prepared testimony.

One solution offered is a unified rating system for how municipal and corporate obligations are rated.

For its part, the Securities and Exchange Commission plans to allow local governments, public agencies, and other bond issuers to buy back their own debt as a way to ease market distress.

[Slimprofits]

Re: The American Bond Crisis

The bond yield is the left part of the chart, not the right. That's CPI-U.

Thank you. Sometimes, I'm an idiot.

[Slimprofits]

Re: The American Bond Crisis

Record drop in demand for muni bond insurance threatens monolines

State and local governments bought protection on 26% of the $40.8 billion in bonds they sold in January and February, down from 53% a year earlier, according to data compiled by Bloomberg. At that rate, 2008 will mark the steepest- ever annual decrease, wiping out almost two decades of growth, Thomson Financial data show.

Barney Frank gives muni raters a month to change standards

“I don’t think this is a situation we can tolerate,” Mr. Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, said at a hearing in Washington on municipal ratings, bond insurance and rising debt costs for local governments. “If this doesn’t get corrected, we will have to intervene.”

[..]

Moody’s plans to allow municipal issuers to request a corporate-equivalent rating for their tax-exempt bonds starting in May, Mr. Levenstein said. The so-called global scale ratings currently are only available on taxable bonds, and for an extra fee. Mr. Frank today called that extra cost “abusive.”

“I find that unacceptable to charge them double,” Mr. Frank said. “We will legislate against that.”

Munis to refinance $23 billion of auction-rate debt in next 30 days

States, cities and agencies are pulling out of the $330 billion auction-rate market, where costs almost doubled since January, according to the Securities Industry and Financial Markets Association. Municipal borrowers plan to sell about $22.5 billion of fixed-rate, tax-exempt bonds in the next 30 days, the most in five months, according to data compiled by Bloomberg.

“We’ve never seen this type of dislocation,” said Paul Brennan, who helps manage about $12 billion of bond funds at Nuveen Asset Management in Chicago. “We have a potential to see a tremendous amount of issuance,” he said. “We’re going to see a tidal wave.”

A buddy of mine at a Hedge fun in NYC, says that they are making a killing on muni bonds.

[FRED]

Re: The American Bond Crisis

Fred, I have to ask for assistance with this. The chart says that 10 yr bond yield is around 1.8% right?

Are you referring to the 10 year treasury constant maturity rate?

Yield is often expressed as Constant Maturity Rate.

[FRED]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Sure, why not.

Look at this scenario by Karl:

This guy Buzzsaw97 over at tickerforum has interesting things to say about Karl...

You guys trash EJ, then he comes on here to defend himself, then you just give him **** because he doesn't day trade with his home equity the way you do. You would rather take "DOW 4000" Kunstler's side of things. Very well, I am going to take itulip's advice and opt for a graceful exit. Wisdom is vindicated by all her children, but so far I have only seen the loudmouth fool and his folly on this forum. Pearls before swine. Gentlemen, I bid you good night and good luck.

[Sapiens]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

This guy Buzzsaw97 over at tickerforum has interesting things to say about Karl...

You guys trash EJ, then he comes on here to defend himself, then you just give him **** because he doesn't day trade with his home equity the way you do. You would rather take "DOW 4000" Kunstler's side of things. Very well, I am going to take itulip's advice and opt for a graceful exit. Wisdom is vindicated by all her children, but so far I have only seen the loudmouth fool and his folly on this forum. Pearls before swine. Gentlemen, I bid you good night and good luck.

LOL, just read that thread. I don't know why do you waste your time. One fallacy in the inflation/deflation debate is not taking into account that in a crisis Gold/Silver become money in and of it selves due to their inherent qualities. Meaning that a Note priced at X bonars may cost less Y Au ozt regarless of the bonar/Au ratio.

Whatever.

[Guest]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Fred -

I spent a little time looking over the posts on the Tickerforum link you provided. Was not familiar with this community so read through it with a little care. The difference in the caliber of poster (genuine intellectual sincerity and curiosity) between there and here is *notable*.

Tickerforum's members seem decidedly "low-rent" denizens compared to the contributors here - and a bit lost too - wandering in the desert looking for the bottom line. I am sparing in my "iTulip kudos" in order to not devalue that currency. But kudos must once again go to iTulip and it's contributors for leaving shrill blogs like Tickerforum behind.

I do however continue to appreciate Mr. Kunstler's critiques and observations. He may be an ultra-doomer and a bit "over the top" with the Calvinistic "retribution for humanity's follies" thingy, but I find a formidable streak of pithy observations within his commentary. However the venue, Tickerforum, left me wholly underwhelmed.

I grinned at this iTulip post there (seems to peg the clarity of their net contributions down with little sentimentality):

__________________________________________________ ____________

Itulip [ posting at TICKERFORUM ]
Posts: 88
Incept: 2008-01-06
New Hampshire

Does Wage Inflation Cause Price Inflation? -- FEDERAL RESERVE BANK OF CLEVELAND

http://www.clevelandfed.org/Research/Pol....

"Conclusion: There is little systematic evidence that wages (either conventionally measured by compensation or adjusted through productivity and converted to unit labor costs) are helpful for predicting inflation. In fact, there is more evidence that inflation helps predict wages. The current emphasis on using changes in wage rates to forecast short-term inflation pressure would therefore appear to be unwarranted. The policy conclusion to be drawn is that inflation can appear regardless of recent wage trends."

But that's just the silly Federal Reserve talking after doing actual professional research, not some asshat on the Internet "who knows a lot about economics" talking out his ass to the applause of deflationista dittoheads.

__________________________________________________ ____________

FRED WROTE:

This guy Buzzsaw97 over at tickerforum has interesting things to say about Karl... ... You guys trash EJ, then he comes on here to defend himself, then you just give him **** because he doesn't day trade with his home equity the way you do. You would rather take "DOW 4000" Kunstler's side of things. Very well, I am going to take itulip's advice and opt for a graceful exit. Wisdom is vindicated by all her children, but so far I have only seen the loudmouth fool and his folly on this forum. Pearls before swine. Gentlemen, I bid you good night and good luck.

[GRG55]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

This guy Buzzsaw97 over at tickerforum has interesting things to say about Karl...

You guys trash EJ, then he comes on here to defend himself, then you just give him **** because he doesn't day trade with his home equity the way you do. You would rather take "DOW 4000" Kunstler's side of things. Very well, I am going to take itulip's advice and opt for a graceful exit. Wisdom is vindicated by all her children, but so far I have only seen the loudmouth fool and his folly on this forum. Pearls before swine. Gentlemen, I bid you good night and good luck.

Satisfying voyeuristic inclinations by surfing other financial sites while the Boss is away, FRED? :p


Meanwhile back at The [Great] American Bond Crisis:

Gross, SEC Fail to Break Auction-Rate Bond Paralysis

By Jeremy R. Cooke

March 14 (Bloomberg) -- Billionaires Bill Gross and Wilbur Ross and the U.S. Securities and Exchange Commission failed to restore confidence in the $330 billion auction-rate bond market, as borrowing costs for states and municipalities rose.

Auctions for borrowers from San Francisco to Houston were unsuccessful even after Gross, who runs the world's biggest bond fund, and Ross, who invests in distressed companies, said they were buying municipal debt...

...More than 67 percent of auctions failed this week, based on data compiled by Bloomberg...

...``I don't believe there's anyone in the auction-rate market today who if they had a choice to get financing somewhere else wouldn't be trying to get it,'' said Charles Grande, who manages $13 billion of municipal securities...

...Investors and securities firms such as Zurich-based UBS AG and New York-based Goldman Sachs Group Inc. and JPMorgan Chase & Co. abandoned the market as losses tied to subprime mortgages and related securities threatened bond insurers' AAA ratings...

...Municipal bonds had their worst month in 21 years in February, losing 4.6 percent, Lehman Brothers Holdings Inc. said. Top-rated, 30-year tax-exempt bonds yielded a record 59 basis points more than taxable Treasuries...

...``Things were getting more dire,'' said Elizabeth Hruby, Cleveland's debt manager. ``With variable-rate debt, you've got to be able to weather the storms, but this is fairly extreme.''

http://www.bloomberg.com/apps/news?p...AJw&refer=home

[bill]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Satisfying voyeuristic inclinations by surfing other sites while the Boss is away, FRED? :p

What happen to EJ and the freds?
EJ must be in
Thanks for all the post GRG55 keeps me reading

[EJ]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

What happen to EJ and the freds?
EJ must be in :pAsia:p setting up non dollar accounts?
Thanks for all the post GRG55 keeps me reading

Hello, Bill.

Just returned from a week in NYC expanding interviews for the Doomer Hedgies piece and meeting with publishers. Chances are I'm going to write a book. Unfortunately, I've been instructed to not tell readers here what the book is about. While I don't mind other sites on the Internet borrowing iTulip ideas publishers take a distinctly different view so I can tell you little until I begin to reveal sections of the book in the subscription area as I write it.

The local NYC economy is slowing with stunning speed.

Popular NYC joke there offers a clue:

Q: What's the new status symbol on Wall Street?
A: A job.

Eric

[jimmygu3]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

The difference in the caliber of poster (genuine intellectual sincerity and curiosity) between there and here is *notable*.

Tickerforum's members seem decidedly "low-rent" denizens compared to the contributors here - and a bit lost too - wandering in the desert looking for the bottom line. I am sparing in my "iTulip kudos" in order to not devalue that currency. But kudos must once again go to iTulip and it's contributors for leaving shrill blogs like Tickerforum behind.

Right on! I think the intellectual bar here is set quite high. It all comes from the top: EJ leading by example with his humble nature, razor sharp analysis, objective respect for the facts and biting intolerance for BS. The earliest members like jk, Finster, SeanO and others started a level of discourse that has attracted many more like minds, not simply more uniform opinions.

I just realized that yesterday was my iTulip 'anniversary'. It has been an incredible year of learning and debating, and I thank the entire iTulip community for that. I have honestly found that my real-life interactions have escalated to a higher intellectual level due to the caliber of minds I read and spar with here. Thanks!

Jimmy