So the 10 year Treasury is hanging around 1.5%. I mean, really. WHOTF cares. Who is 1.5% gonna break? NO ONE! Yields aren’t the problem. Price is the problem.
Last week, the 10 year Treasury yield hit its move projection but is hanging around.
Of course that means that bond prices are stuck near their lows. That’s the real problem, not that the yield is at 1.5%. That won’t break anyone’s back.
But when your bond portfolio is only worth $85 and you borrowed a $100 to acquire and hold it, you’re in deep shit. That’s about what the current situation is for many holders, including especially Primary Dealers.
The enforcers are banging at your door with lead pipes. They want their money, and you don’t have it.
The US Treasury rides to the rescue!
But we still have this big problem despite the US Treasury mounting a massive rescue operation in the last week. Using its $1.6 trillion cash hoard, the Treasury has now injected $145 billion into the money market since last Tuesday 2/23, including $30 billion settling this afternoon. That helps to liquify some of those idiots who bought Treasury coupon paper when the 10 year yield was below 1%.
I mean, who does that!
Meanwhile, the Treasury has scheduled another $25 billion to hit next Tuesday. No doubt it will announce even more this morning at 11 AM. Stay tuned for that.
Considering these cash injections, we have to wonder how bad things would have gotten had the Treasury not done this. Even with this support, it’s not enough. Merely stabilizing the bond market will not solve the problem of dealer inventories massively under water and being hit with collateral calls.
Meanwhile, the Fed sits on its hands and says, “Oh, this is great. It just means the economy is recovering!” The part about the economy may be true, but the “it’s great” part is BS, and you and I and the Fed knows it.
Fed Gov. Lael Brainerd wrung her hands publicly about it yesterday. Yield curve control is coming. That means unlimited QE for as much debt as the Treasury issues as far as the eye can see.
What will the consequences be? I do my best to answer that question from the research and analysis I illustrate for you in each Liquidity Trader report.