The Wall Street Examiner » 10 Year Treasuries

Wake up! U.S. Looking Even Worse Than Japan

Bears Chat at The Wall Street Examiner — Wed, 28 Sep 2011 12:32:41 +0000

With 10-year Treasuries sub 2%, and growth restagnating, more and more people are buying into the "US is Japan" scenario. And it's not just that the numbers look similar conomically.

The same thing has ailed both countries: a multi-year project to pay down private sector debt.

In his latest note, Nomura's top Conomist Richard Koo suggests that the US-Japan comparison might be too rosy!

US balance sheet recession may be deeper than Japan’s
In one respect the US balance sheet recession is far more severe than Japan’s. Even though real interest rates—nominal rates adjusted for inflation—are far lower in the US than they were in Japan at end-1997, they have yet to elicit any reaction from the US conomy.

Not only has the US economy’s response been similarly anemic, but the unemployment rate is also more than twice as high. Moreover, it took seven years from the collapse of the Japanese bubble for long-term rates to fall to that level, whereas only three years were needed in the US. Real GDP also stood substantially above bubble-peak levels in 1997 Japan, while in the US it has already slipped below the high-water mark.

End of US housing “myth” may have far-reaching consequences
The more pronounced weakness in the US conomy in spite of lower real interest rates suggests the housing bubble collapse had at least as serious an impact as it did in Japan. The belief that it was impossible to lose money buying Japanese property persisted for 45 years after World War II. The
corresponding US housing myth lasted even longer—some 70 years—and the psychological damage resulting from its collapse may be that much larger.

Read more: http://www.businessi...9#ixzz1ZFYEZJRl

What’s the most outrageous, seemingly-impossible…

Bears Chat at The Wall Street Examiner — Thu, 01 Sep 2011 01:54:40 +0000

Well, for me it's a continuation of the insane interest rate chart trend, shown below.

Really, if someone would have told me that in 2011 the U.S. will have racked up $15 trillion in sovereign debt (plus another hundred trillion in "off the books" obligations), AND total U.S. debt will have skyrocketed to nearly $60 trillion BUT interest rates on Uncle Thug's IOUs (and credit over all) will have COLLAPSED to historic lows, I would have told them they are insane.

But here we are: that exact scenario having played out.

So, going forward, what is the most outrageous, seemingly-impossible, economic scenario imaginable?

Yep, you guessed it: the debt keeps piling up, but interest rates continue to fall to near-zero on Uncle Thug's debt.

(Spock Conclusion): So, going against every fiber of my body--which is screaming "This can't go on!!!"--I am again considering buying one of Uncle's 10-year Treasuries at the upcoming September 13th auction.

Insane, you say?

Perhaps. But where were YOU in 1981, when interest rates on Uncle's 3-Month T-Bills were in the double digits? Did YOU predict this thirty-year run of collapsing rates--while the debt piled to the sky?

Yeah, I didn't think so.

Therefore, since neither one of us could have ever imagined today's scenario, ipso-facto we cannot imagine it continuing on for another decade, right?

But what if it does?

And what if buying a 10-year Treasury yielding in the low-2-percent range turns out to be a brilliant financial decision?

Hey, stranger things have happened, haven't they?

LOL

Mass Psychosis – Professional Edition Fed Report

Lee Adler — Tue, 03 Nov 2009 23:12:14 +0000

The Treasury finished up a light week with a 4 week bill auction that drew another wave of panic buying keep the rate near zero. There’s no real sign of a letup to the mania, as terrified investors continue to seek the “safety” of the shortest term Treasuries. Panic behavior of this nature always ends badly. Another anomaly of note is the fact that 10 year Fannie paper is now yielding less than 10 year Treasuries. This is another sign of mass psychosis. Unfortunately, the source of the infection has been Bernanke’s insane policy of piling up risky MBS paper on the Fed’s balance sheet. Wave after weekly wave of Fed buying has created one of the most ridiculous market distortions in history. Unfortunately, the problem it was designed to solve, the housing market collapse, isn’t responding. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

Fed Report Update

Lee Adler — Tue, 08 Sep 2009 19:31:33 +0000

The Treasury sold 13 week and 26 week bills and 3 year notes on Tuesday, and announced the 4 week bill to be auctioned Wednesday. Bid/cover ratios were high but lower than last week’s hysterical panic levels at the bill auctions. One week does not a reversal make, but a trend of reduced bid/covers could be a harbinger of doom for the Fed and Treasury’s shell game, and hence for the financial markets.

The bid/cover on the 3 year note was slightly higher than at last month’s auctions. However, in all 3 cases the indirect bid was down significantly from the last auctions of the same paper. That could be significant as it continues a gradual trend that began a couple of months ago.

The 4 week bill will be $3 billion more than the TBAC forecast, but it will still involve a paydown of $13 billion. That means that Thursday’s settlements will involve a net paydown of $16 billion, normally a plus for the markets. However, that will be reversed next Monday when the the notes and bonds to be auctioned this week will settle. We’re still waiting to see if there’s a CMB announcement for settlement Monday. If not, that would reduce Monday’s settlement to net new supply to just $35 billion. It will also give us some idea if the Treasury’s revenues are coming in any better or worse than expected.

The Fed did the scheduled buy of 7-10 year Treasuries totaling just under $5 billion as they wind down their direct Treasury purchase operations. Treasury yields rose slightly as the market nervously faced the prospect of being take off Fed life support in the weeks ahead. Next week won’t be that much of a test because the September 15 week gets a boost from tax collections which normally result in significant paydowns for a couple of weeks. Those paydowns will be reduced and could even be eliminated this year as a result of collapsing revenues. The question is what impact that will have. It will be a crucial test of the market’s ability to absorb massive supply without the Fed subsidy, as well as reduced FCB subsidies.

The Fannie spread widened to 24, Freddie to 51.

The next Fed Report with tables, charts, and complete analysis will be posted for subscribers on Wednesday. The weekly update including all the data from the Fed’s weekly balance sheet updates will be posted late on Friday.

Stay up to date with the machinations of the Fed, Treasury, and foreign central banks in the US market in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and get in RIGHT NOW!

Fed Master Stroke – Professional Edition

Lee Adler — Tue, 21 Jul 2009 19:24:38 +0000

The Treasury boosted new supply this week to $40 billion with yesterday’s announcement of two CMBs totaling $65 billion, but perhaps more importantly there’s nothing for sale in the intermediate to long end of the curve. It’s all in the form of short term bills and CMBs. In the face of that, the Fed came in and bought $7 billion of 7-10 year Treasuries. It was a master stroke, triggering a 10 basis point drop in the 10 year yield. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.