Treasury Bond Bubble Bursting?

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Each week the Federal Reserve provides an updated number for its Custodial Accounts. A very crude way of understanding these is to consider them as a type of savings account for Foreign Central Banks that are held at the New York Branch of the Federal Reserve.
However something noteworthy now appears to have been underway since September of this year. The amount of Treasuries held in custody for these foreign Central Banks now appears to be slowly, but steadily declining. It reached a peak of $2.752 trillion the first week of September this year and has now declined to $2.67 trillion as of this week. That is a drop of $82.5 billion.
It might be a bit too early to say with certainty, but if this is the beginning of a trend, it will signify that we are headed for a period of rising interest rates as it is doubtful that the Fed alone could soak up the Treasuries that foreign Central Banks might choose to unload if they begin getting nervous about the prospects of the US Dollar in the months and years ahead.

... We have now learned that Europe, and especially Germany has been just an active seller of sovereign bonds, most certainly including US paper, in recent weeks. ... According to today's update in the H.4.1, the total amount of securities held in the custodial account for foreign official and international accounts just plunged by $20 billion, of which $19 billion was attributable solely to Treasurys: the second largest weekly dumb ever. And since this total number includes both Treasurys, which are used for political purposes, as well as Agency securities, which don't really serve much in terms of a diplomatic statement but are great at shoring up liquidity, one can assume that the relentless selling in all types of US paper has had one purpose only: to generate capital. As the third chart shows, that amount is substantial: in the last 8 weeks foreigners have sold a unprecedented $93 billion across the custodial account bringing it to $3.392 trillion, the lowest since March 2011! So the next time someone asks where European banks are finding emergency liquidity now that commercial paper, money market and Libor Markets are all dead, you will have the answer.


So all these Euro banks need to sell some assest to raise capital / liquidity... Why aren't they selling off all that useless tradition they have lying around? :snidely:
We have seen a remarkable and historic bond bubble. Who would have thought 10 years ago that you would get only 2% (and change) on a 10 Year Note? I would not have, it would have seemed ludicrous to me that the market would accept a real -4% or so (depending on whose inflation figures you accept). No way I would have guessed that.

But, I have also noted that some still say that if things get bad (worse) outside the USA that even MORE money could come into Treasuries.

Yes, at some point this bubble too will pop. But, I am not going to try and time this one.

Short Treasuries at your own peril!

I'll just stick to gold and other PMs with any extra dough that comes my way.
I think as a trade shorting treasuries is fine. Going long gold and silver is probably going to net you more money in the long run.
Nice selloff out of nowhere in 10years today, probably end of the quarter window dressing:
We had better pray that the US bond bubble doesn't burst any time soon. If the interest paid was anywhere near reality right now, we would be in a giant heap of trouble.
Ever since the Bretton Woods (pseudo) gold standard collapsed (late 1960s), the treasury market is out of balance. Look at the long-term stability from the 1890s to the late 1960s. Even during the Great Depression with it's severe price deflation 10 year yields did NOT go negative.

Current 10 Year Treasury Rate: 2.22%
April 2, 2012

Mean: 4.66%
Median: 3.82%

Min: 1.95% (Jan 1941)
Max: 15.32% (Sep 1981)
Sooner or later the FED is gonna be forced to monetize the debt if (10 year) interest rates continue to rise
They were ~2/3'ds of the market last year. Who's gonna buy if they don't?
They were ~2/3'ds of the market last year. Who's gonna buy if they don't?
Maybe the FED is gonna enact 10 year LTROs for 1% p.a. so banks can make money on the spread

Afterall, that's what the ECB does with it's 3 year LTROs.
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