US Treasuries sell-off gathering pace

[pmbug]

...
But while things may be hunky-dory for the Fed in terms of the stock market and improving economic statistics, the bond market is the fly-in-the-ointment. “Is the bond market’s Arab Spring upon us?” Business Insider asks, following another torrid day for US Treasuries yesterday. The yield on 10 year Treasuries stood at 2.04% at the start of trading on Monday; by the close of play yesterday, it had had risen to 2.27%. The yield on the 30-year bond settled at 3.41% – up from around 3.17% on Monday.

These are of course still paltry yields in the context of decadal averages in these assets, and many financial commentators have got burned in recent years predicting blood in the bond market. While all common sense and rationality tells us that yields on Treasuries must rise given the deteriorating state of US public finances, yields remain very depressed by historical standards – as can be seen from the chart below that tracks the 10-year yield back to 1963.

<charts>

The old adage “the market can remain irrational longer than you can remain solvent” has applied very well to the Treasury market in recent years – with the bulls helped of course by the Fed’s drastic open market operations since 2008. The Fed now owns more than 40% of the maturing Treasuries for certain years.

This market bears close attention. Are the bond vigilantes at last making an appearance?

Source (with charts): http://www.goldmoney.com/gold-research/newsdesk/us-treasuries-sell-off-gathering-pace.html

 

[swissaustrian]

I was just about to post that.
Gladly I went short when 10y yields were below 2%.
The bond bull market seems to come to an end.
Sovereign debt crisis coming to the US in 3...2...1... years?

 

[DCFusor]

I'm one who has been burned here - drank too much ZH koolade. But you can bet that TMV is back on the radar, as is VXX.

The return of the bond vigilantes? I don't think they ever left, but "you can't fight the fed" - maybe it's more like the fed is failing to keep up. You don't need active vigilantes for the bonds to go down, just a lack of buyers at high prices.

 

[DSAbug]

Considering the fed was buying about 92%+ of the 3+ year bonds last year, it's safe to assume that the end of "operation twist" is causing the sell off. No one is willing to buy that low of interest rates.

 

[mmerlinn]

Locally house prices were up 4% in February, the first signs of housing prices turning around. Now it looks like interest rates will suddenly turn, too. Guess, if one has the money, one should buy that cheap dream house now while both prices and interest rates are low.

I know where there are quite a few decent houses for sale under a hundred grand, some even with 3 bedrooms. Bet they won't last long if the above keeps happening.

 

[pmbug]

^ I don't believe that housing has finished it's correction - not by a long shot.

 

[pmbug]

Trader Dan:

...
What has happened is very simple - the happy talk about the US economy coming out of the FOMC minutes has traders jettisoning safe haven trades and even short term Treasuries in favor of the bull train leaving the station in the US equity markets. The problem? The last thing that the Fed and the US government needs or wants is a rising interest rate environment.
...
The Fed has basically undercut it own low interest rate policy by giving investors the greenlight to sell bonds in order to deploy those funds into the equity markets. See what happens when you engineer a stock market rally?

I suspect that the Fed is going to be getting increasingly nervous if this sell off in the bonds, particularly the long end, continues unabated. Let's see how far the bond bears will push them.
...

http://traderdannorcini.blogspot.com/2012/03/bond-collapse-continues.html

 

[pmbug]

10Y about to broach 3% this morning... 2.97% at the moment.

 

[pmbug]

This was from June (for context):

... Spreadbury's alternative scenarios outline the possibility for QE to stop next year, which would send rates to 3 percent, but he said the negative impact on the economy would be so great that such a scenario was not very likely.

Ian Winship, absolute return bond fund manager at BlackRock, said while he thinks yields on the 10-year Treasury will rise, he said the Fed will prevent them rising over 3 percent, as anything over that could "short circuit" the recovery.

"For those that think yields are going a lot higher– that's a big call. If they don't control the yield then that tapers growth more than anything else, and when inflation is barely above 1 percent, that is a real worry for the Fed," said Winship.

"If they go to 3 percent, that is going to increase the mortgage rate and take away one of the pillars that is supporting the U.S. economic revival."

http://www.cnbc.com/id/100812958

Rates are already near 3% and the Fed hasn't even't started to taper, much less stop QE.

 

[pmbug]

Oh, I see that ZH also published a piece on the 10Y this morning:

http://www.zerohedge.com/news/2013-...300-just-50bps-left-until-disorderly-rotation

 

[Aubuy]

Whoops. :flail: Something missing in order for the 10Y to go above 3% right now. It's called jobs. No worries though because the unemployment rate keeps dropping because fewer people are looking for work. I want to take a minute here and congratulate the geniuses who came up with this plan for reducing the unemployment rate. Pretty soon there will be no unemployment and nobody will be working. :clap:

 

[pmbug]

... now that the Fed has refused to taper, it is absorbing over 0.3% of all Ten Year Equivalents, also known as "High Quality Collateral", from the private sector every week. The total number as per the most recent weekly update is now a whopping 33.18%, up from 32.85% the week before. Or, said otherwise, the Fed now owns a third of the entire US bond market.

...

At this pace, assuming Janet Yellen keeps delaying the taper again and again over fears of how "tighter" financial conditions would get, even as gross US bond issuance declines in line with the decline in deficit funding needs, the Fed will own just shy of half the entire bond market on December 31, 2014... and all of it some time in 2018.

http://www.zerohedge.com/news/2013-12-02/chart-day-fed-now-owns-one-third-entire-us-bond-market

 

[ancona]

So, what is the highest sustainable interest rate on Treasuries? At some point, it becomes too much pain to bear and the edifice crashes down in a smoking heap. What is that number?

 

[pmbug]

Good question. I don't think anyone knows the answer for sure, but I've read thoughts that ~5% would be ... [Egon Spengler] *bad* [/Egon Spengler]

 

[pmbug]

...
In summary: someone, unclear who, operating through Belgium and most likely the Euroclear service (possible but unconfirmed), has added a record $141 billion in Treasurys since December, or the month in which Bernanke announced the start of the Taper, bringing the host's total to an unprecedented $341 billion!

Also of note: Chinese holdings of US Paper dropped by $2.7 billion to $1273 billion, offset by Japan's $9 billlion increase in holdings to $1210 billion, as the convergence between the two countries resumes.

One thing that is certain: the mystery buyer is not Russia, which in February, or just as the Ukraine conflict was starting, sold another $6 billion, bringing the Russian total to $126 billion, the lowest since 2011, and the biggest annual drop, -24%, in holdings in history.

http://www.zerohedge.com/news/2014-...us-third-largest-treasury-holder-ramps-higher

A duck! /King Arthur

I'm guessing it's the Fed.