Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

[cjppjc]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Is there any evidence that the Fed is secretly buying the debt? The Treasury portion of their QE program is done (for now).

Unless there is compelling evidence to the contrary, I see no reason to believe that the Fed is bidding at these auctions.

Rick Santelli said on the floor the traders were saying it was the "TPPT" Treasury Plunge Protection Team. According to Rick, in the old days the Fed would buy a few days later. Not today was the guess being made.

[icm63]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

The FED "TPPT" wont beat the market...

What ever happened to FREEDOM in the markets !:mad:

[icm63]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Fed purchases of MBS 95% done...

Are you expecting another announcement soon, that is the QE will be extended another $150 BN or whatever...

REF: http://www.calculatedriskblog.com/20...-complete.html

The tea leaves say higher rates all round..

[ASH]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Fed purchases of MBS 95% done...

Are you expecting another announcement soon, that is the QE will be extended another $150 BN or whatever...

The tea leaves say higher rates all round..

My bet is first the mortgage market barfs and then we get the announcement about QE being extended.

[icm63]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

.."then we get the announcement about QE being extended."...

What does that mean GOLD rallies to : $999,999,999,999,999,999,999

[big67]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Rick Santelli said on the floor the traders were saying it was the "TPPT" Treasury Plunge Protection Team. According to Rick, in the old days the Fed would buy a few days later. Not today was the guess being made.

nice but a little wonkish article on Bloomberg:

http://www.bloomberg.com/apps/news?p...d6Bh9eSY&pos=5

would somebody comment? it looks to me that MBS spreads should be rising with the FED phasing out, not falling.... (edited) I do believe PPT exist, but it operates in the open, in full sunlight, it is Paulson bazooka so to speak...

[ThePythonicCow]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

And here's to hoping that I'm completely f-ing wrong.

Here's a tidbit of indirect circumstantial suggesting you're right. From Enter Cede & Co II; The Fed Is Now Backstopping $25 Trillion In DTCC Cleared Credit Default Swaps:

Earlier today, the Depository Trust & Clearing Corporation, best known for its Cede & Co. partnership nominee which is the holder of virtually every single physical stock certificate in the known universe, and accounts for over $2 quadrillion in stock transactions per year, announced that "the Federal Reserve Board had approved its application to establish a DTCC subsidiary that is a member of the Federal Reserve System to operate the Trade Information Warehouse (Warehouse) for over the-counter (OTC) credit derivatives." With this approval the DTCC is now the de facto legally accepted global repository for over-the-counter credit derivative transactions. Simply said, the Federal Reserve is now the guarantor behind all CDS transactions that clear via DTCC, which would be pretty much all of them (sorry CME, you lose). The total bottom line in terms of gross notional? 2.3 million contracts with a gross notional value of $25.5 trillion. When the next AIG implodes, and the CDS market is once again facing annihilation in the face, who will be on the hook? You dear taxpayer, that's who.

...

And from an insider, we know that the company will be funded and commence operations by March 1.

From what I recall of my history readings, the U.S. got into World War I by putting "war material" on the passenger ship RMS Lusitania and sending it (and some hapless passengers) into an area well known to have German U-Boats. The Germans sank it, the U.S. populace was suitably outraged, and the doughboys were off to war.

If I didn't know better, I'd think someone was loading up the USS Fed-Treasury with enough explosive financial paper to sink it and incite the U.S. populace into signing up for (1) tougher world wide financial and economic regulations and a world-wide BIS concoction to replace the Dollar as the world's reserve currency (the meta-currency used between central banks.)

[ASH]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

nice but a little wonkish article on Bloomberg:

http://www.bloomberg.com/apps/news?p...d6Bh9eSY&pos=5

would somebody comment? it looks to me that MBS spreads should be rising with the FED phasing out, not falling.... (edited) I do believe PPT exist, but it operates in the open, in full sunlight, it is Paulson bazooka so to speak...

I read the Bloomberg article as saying that the GSAs announced they will buy back mortgages that they originally issued, but which were earlier bundled into MBS and sold to third parties. The article says the GSAs are buying mortgages out of their higher-coupon debt, which says to me they are basically "calling" their higher-interest bonds... probably because the underlying mortgages are defaulting, so the GSAs know they won't have the income to pay the interest over the lifetime of the bonds. Since losses at the GSAs are now backstopped by the Treasury, I guess they are trying put the losses associated with those defaulting mortgages onto their own books now.

The article says that speculators believe the investors who originally held the MBS that the GSAs are calling will now have cash, and may possibly be inclined to re-invest that cash in other MBS rather than re-allocating into a different category of investment. The thought, then, is that this announcement represents about $200B in new demand for MBS, and mortgage rates are dropping due to anticipation of this source of demand.

My (very uninformed) opinion is that even with backstopping by the Treasury, the GSAs spending capital to buy back their own mortgages will adversely affect their ability to issue new mortgages. On top of this, the $200B "demand" for MBS that might be freed up by this activity is small compared to the $1.2T demand for MBS created by the Fed over the last year. Therefore, although mortgage rates may have fallen in response to the announcement, they are unlikely to stay low once the GSAs follow through, and later in the year.

[big67]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

I read the Bloomberg article as saying that the GSAs announced they will buy back mortgages that they originally issued, but which were earlier bundled into MBS and sold to third parties. The article says the GSAs are buying mortgages out of their higher-coupon debt, which says to me they are basically "calling" their higher-interest bonds... probably because the underlying mortgages are defaulting, so the GSAs know they won't have the income to pay the interest over the lifetime of the bonds. Since losses at the GSAs are now backstopped by the Treasury, I guess they are trying put the losses associated with those defaulting mortgages onto their own books now.

The article says that speculators believe the investors who originally held the MBS that the GSAs are calling will now have cash, and may possibly be inclined to re-invest that cash in other MBS rather than re-allocating into a different category of investment. The thought, then, is that this announcement represents about $200B in new demand for MBS, and mortgage rates are dropping due to anticipation of this source of demand.

My (very uninformed) opinion is that even with backstopping by the Treasury, the GSAs spending capital to buy back their own mortgages will adversely affect their ability to issue new mortgages. On top of this, the $200B "demand" for MBS that might be freed up by this activity is small compared to the $1.2T demand for MBS created by the Fed over the last year. Therefore, although mortgage rates may have fallen in response to the announcement, they are unlikely to stay low once the GSAs follow through, and later in the year.

Thank you for your patience.
I get the correct meaning now... not easy to grasp all the consequences.
One that comes immediately into mind is that this money is going back directly into the economic cycle, so it may generate inflation.

[ASH]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

One [consequence] that comes immediately into mind is that this money is going back directly into the economic cycle, so it may generate inflation.

I guess the question is whether we're talking about asset price inflation or consumer price inflation. According to the article, investors in mortgages seem to be betting on this contributing to asset price inflation... specifically to the price for mortgages (or MBS).

The impact on consumer prices would be more significant if the money was plowed into a more spendable form, such as the extension of consumer credit. However, if the entities which will receive cash from the GSAs are large investment funds, they might just re-invest the cash back into other assets with a similar risk/duration/yield profile, rather than letting it loose to stimulate consumer price inflation.

Of course, there are linkages between the two... the availability of mortgage financing at attractive rates does encourage refinancing and other transactions which could free up consumer cash flow and impact prices through demand. I guess it's a question of how muted the impact might be. Offhand, I think the impact should be similar to that of the Fed monetizing $1.2T of MBS... only 1/6th the size. I imagine the pacing matters, too, since the Fed's purchases were spread out over a year or so. Could be we get a similar impact on mortgage rates, but for 1/6th the duration, etc.

[Camtender]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

.."then we get the announcement about QE being extended."...

What does that mean GOLD rallies to : $999,999,999,999,999,999,999

Can they really not extend QE? I don't think it can be closed, kind of like taking a heron addict off of a 30 year binge, take away the drug at once and death comes quick. What would happen to mortgage rates? Treasury rates?

[ASH]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Can they really not extend QE? I don't think it can be closed, kind of like taking a heron addict off of a 30 year binge, take away the drug at once and death comes quick. What would happen to mortgage rates? Treasury rates?

The Fed stopped buying Treasuries under their QE program at the end of October 2009. Clearly, they can stop QE for awhile without Treasury auctions failing, but it certainly seems like yields are rising.

Likewise, they may be able to stop QE of MBS for awhile without the mortgage market dying, provided that the GSAs step up with their new backing from the Treasury. However, calling upon the Treasury to backstop the GSAs increases the fiscal stress on the US government, and compounds their problem selling debt. Also, monetization by the Fed was a much larger fraction of the total market in MBS than of the Treasury market, so I think things fall apart in the mortgage market sooner after QE ends than in the Treasury market.

I'm betting that we go through a period where the Fed tries to wean the mortgage market off of QE, but that this fails, and by the end of the year an extension of the MBS-only QE is announced. I'm less sure that an extension of QE for Treasuries will occur. If it does, then we're still on the road to hyperinflation (albeit not necessarily there yet).

[icm63]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

Can they really not extend QE?

The biggest downside for NOT stopping QE is political pressure before Aug, Sep congress elections this year.

You cant have GOP screaming at DEMs on there spending...and QE is part of this..

So there will be a pause, tactically, but no doubt there will future sessions of QE just like the ON and OFF swings of QE that went on in Japan.

[DRumsfeld2000]

Re: Failed 30-Year Auction Closes Rough Week; Treasurys Fall - CNBC

This seems to be a reasonable place to slot this information rather than starting a new thread:-

Saturday, February 20, 2010
Of PIGS And Elephants

We all know the pitfalls of comparing apples to oranges. But what of pigs and elephants? (Note: PIGS = Portugal, Ireland, Greece, Spain).

Case in point, the sovereign debt crisis which started in Greece and spread to Portugal, Spain and other such debt-fed porcines. It wasn't long before Italy, France and other EU nations started feeling the ripples in their government bond prices. Even Germany, that beacon of uber-conservative government finances, saw its CDS prices climb higher.

Analysts, financial journalists and global pundits are now falling all over themselves to criticize the Greeks for the mess they made. Nouveau-popular Roubini and Taleb have gotten in on the act and a day does not go by without mention of Greece in the front pages of major financial networks (Bloomberg, Reuters, WSJ, FT..). They have even unearthed a funky $1 billion cross-currency swap from 2002 arranged by Goldman Sachs (who else?).

Ahhh.. as the ancient Greeks used to say: Δρυός πεσούσης πας ανήρ ξυλεύεται (once a tree is felled everyone can be a lumberjack). To use yet another allusion, the Greek pig is being sacrificed at the altar of "high" finance.

And who's the elephant? Why, the USA of course! Compare the size of projected budget deficits for 2010: Greece $27 billion, USA $1.6 trillion - and that's just the federal deficit, i.e. excluding state and local deficits. And everyone is hyperventilating about the Greeks' ability to borrow? Oh, puh-lease!

It is evident to even the least suspicious observer that what is going on is a concerted effort to besmirch the euro in order to drive the dollar higher. Why? Because the US needs to borrow on a gargantuan scale from foreign investors. Since the US cannot pay high interest rates (they would destroy the economy), it must make Treasury bonds attractive in other ways, i.e. through the dollar exchange rate in the FX market. What matters to a foreign bondholder is total return: interest plus FX gains.

Pretty simple to see the picture when the dots are connected..

http://suddendebt.blogspot.com/

The conclusion of this which is about the funding of the US is pretty much how I see this as well.