Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Bond Yields Are NOT the Problem, Bond Prices Are

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.

tvc_d06bd1b651e5c85ffe126b62258dfd92.png

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.

Here’s The Evidence That The US Treasury is Bailing Out Stricken Primary Dealers

Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.