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发帖数: 8363 | 1 (From Agora Finance 5 min news letter)
Yesterday, an auction of 30-year Treasury bonds went south.
So poorly, in fact, did the auction go, yields jumped from 3.51% to 3.78% —
the largest single day leap since “Tall Paul” Volcker was running the Fed
in the early 1980s.
Back then, it was a matter of necessity: Volcker told us, off camera during
the filming of I.O.U.S.A., that his status as an “inflation slayer” was a
revisionist myth, more or less, and that higher interest rates back then
were the only way to bring buyers into the tent and keep the government
funded.
Yesterday’s leap? That was not part of the plan. Certainly not, if you go
by the Fed’s FOMC press release from Tuesday. The Fed wants to keep their
overnight rates at 0-0.25% until mid-2013.
What got us spooked at yesterday’s bond auction is, in a word, the Chinese
didn’t show up. We have speculated on more than one occasion what would
happen if the Chinese failed to show. Well, now we know.
It gets a little worse. Insurance companies and pension funds sat this one
out, too. For the first time in the history of 30-year bond auctions, “
direct bidders” bought more bonds than foreign bidders.
The “primary dealers” — the 20 megabanks that are required to submit bids
in exchange for a host of special privileges with the Fed and U.S. Treasury
— wound up buying 68% of yesterday’s issue.
Why the sudden aversion to U.S. debt?
“Duration risk,” a bond trader would answer.
“Unless you think there’s going to be no inflation for an extremely long
period,” explains Credit Suisse strategist Ira Jersey, “then it’s hard to
make the case for why 30-year bond yields should go a lot lower.”
As if to underscore the point, the People’s Bank of China issued a
quarterly report laying out its worldview today. The main take-away: The
debt level in the United States and other Western nations is “worrisome.”
At the same time, the Chinese allowed their currency to rise to a 17-year
high against the dollar.
nce S&P’s downgrade of U.S. debt last Friday, Chinese leaders have allowed
the renminbi to rise the most in one week since they loosened its peg to the
dollar in June 2010.
“The Chinese have stopped laughing at [Treasury Secretary] Geithner’s so-
called ‘strong dollar policy,’” says Euro Pacific Capital’s Michael
Pento, “and are now allowing the renminbi to rise against the greenback”
— up 6.8% since that loosening of the peg 14 months ago.
“If we continue down this road much longer, the only buyer of U.S. debt
will be the Fed. That’s the real downgrade to come. Not from the credit
rating agencies, but from our foreign creditors.
“Once we have a failed Treasury auction, it will engender a vicious cycle.
Debt service expense will soar, which causes out-of-control deficits. The
Fed will be forced to purchase more of the debt and inflation rates become
intractable, thus destroying GDP growth.” |
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