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CBs And Other "Real Money" Had Enough?
Market Ticker ^ | 05/21/09 | Karl Denninger

Posted on 05/22/2009 5:21:54 AM PDT by TigerLikesRooster

CBs And Other "Real Money" Had Enough?

Oh oh......

From the forum, wire from Reuters claimed original source:

21. There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.

Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.

So now what Ben?

If Foreign Central Banks are selling into Ben's bid then the game is literally weeks or even days away from being over.

I have written for over a year about the potential for a bond-market implosion and subsequent economic collapse.

(Excerpt) Read more at market-ticker.org ...


TOPICS: Business/Economy
KEYWORDS: arbitrage; centralbank; denninger; ecb; ticker; treasury

1 posted on 05/22/2009 5:21:55 AM PDT by TigerLikesRooster
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To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

Ping!


2 posted on 05/22/2009 5:22:25 AM PDT by TigerLikesRooster (LUV DIC -- L,U,V-shaped recession, Depression, Inflation, Collapse)
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To: TigerLikesRooster

I hate to admit my finanacial ignorance, but could you translate this?


3 posted on 05/22/2009 5:32:08 AM PDT by Mangia E Statti Zitto
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To: Mangia E Statti Zitto

Not necessarily a translation, but further discussion here:

http://www.tickerforum.org/cgi-ticker/akcs-www?post=95986


4 posted on 05/22/2009 5:43:11 AM PDT by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: Mangia E Statti Zitto
I hate to admit my finanacial ignorance, but could you translate this?

The party really is over. The Chinese are going to quit subsidizing us by buying our bonds. We're on our own and there's nothing left in the kitty. Now comes the national garage sale as the dollar collapses and the Asians buy up our resources on the super-cheap.

5 posted on 05/22/2009 5:45:39 AM PDT by ccmay (Too much Law; not enough Order.)
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To: TigerLikesRooster
Photobucket
6 posted on 05/22/2009 5:54:21 AM PDT by Crawdad (If you're in a fair fight, your tactics suck.)
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To: Mangia E Statti Zitto
If you ain't reading Denninger's The Market Ticker, you ain't gettin' half the news.
7 posted on 05/22/2009 6:44:25 AM PDT by an amused spectator (Abdullah bin Abdul Aziz's lawn jockey doesn't speak Austrian)
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To: TigerLikesRooster

Breaker, breaker, good buddy...


8 posted on 05/22/2009 7:21:47 AM PDT by Doctor Raoul (Ayers Lied, People Died. No Justice, No Peace.)
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To: TigerLikesRooster
We are following the precise same path we went down in the 1930s. . . . Disclosure: The time to short the phone book is approaching.

Words to the wise.

9 posted on 05/22/2009 7:37:50 AM PDT by Oatka ("A society of sheep must in time beget a government of wolves." –Bertrand de Jouvenel)
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To: TigerLikesRooster
Joy! Seen this one?

TARP Warrant Sale Shows Banks May Reap ‘Ruthless Bargain’

10 posted on 05/22/2009 7:42:41 AM PDT by BGHater (It's easy to be a Conservative now.)
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To: NVDave; sickoflibs
There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.

Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.

bad news ping

11 posted on 05/22/2009 8:23:50 AM PDT by GOPJ (If printing money was an answer, why don't Haitians "print" their way out of poverty?)
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To: Mangia E Statti Zitto

The bond market has a lingo all its own.

Basic executive translation: things are not going as planned for the US trying to auction off a whole lot of debt at cheap interest rates.


12 posted on 05/22/2009 8:30:33 AM PDT by NVDave
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To: BGHater; I got the rope

I got the rope! bump


13 posted on 05/22/2009 8:38:56 AM PDT by an amused spectator (Abdullah bin Abdul Aziz's lawn jockey doesn't speak Austrian)
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To: NVDave

Is there a Bond-Markets-for-Dummies tutorial that you know of? I understand what they are, but how they’re played, how they’re valued, why they’re worth less the higher the yield.. I can’t get my head around the bond & treasury markets.


14 posted on 05/22/2009 10:39:13 AM PDT by lainie (The US congress is full to the brim of absolutely disgusting thieves who deserve humiliating ouster.)
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To: lainie
why they’re worth less the higher the yield..

Because the coupon is fixed.

Let's say you buy a bond for $1,000 with a 6% coupon. You recieve $60 a year.

Now lets say a year later new bonds (same issuer, same duration) pay out 8% or $80 a year. Well, no one will want to buy your $60 a year in income for $1,000 because they can get $80 in income for $1000.

Therefore your bond is worth less than it was a year ago. Now if you hold it to maturity you will still get your $1,000 but if you sell it early you need to do it at a price where that $60 in income equals an 8% yield (or about $750).

15 posted on 05/22/2009 10:44:40 AM PDT by NeoCaveman (control the teleprompter, control the world)
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To: lainie

There’s no tutorial or “bond lingo for the novice” that I know of that helps “decode” the sort of slang that Denninger is tossing out there... you have to sort of read a lot of bond lingo with numbers to start getting the knack of it.

You also have to understand that bonds are priced to a benchmark. Everything in the bond market except the benchmark rates is a “spread” - or, if you’re seeking to make a derivative play off the benchmark, a swap.

The benchmarks are bonds like the 10-year US Treasury Bond, Gilts (in the UK), etc. We’re talking sovereign debt. There are benchmarks at different timeframes - 2, 5, 10 years on Treasuries. 30 year T’s are sometimes used as a benchmark on 30 year corporate and muni paper, but sometimes not - the US doesn’t sell too much 30 year paper anymore since the Clinton administration. Recently there was some new issue 30 year out there.

That’s the very beginning of how the bond lingo is set up - they talk of spreads being “wider” or “tighter” vs. the benchmark or swap, and they’ll talk in fractional percentage points, or basis points (1/100th of a percent). “Par” means the $100 price point on a bond - bonds priced “above par” are selling for more than $100, which indicates demand and therefore a decrease in the yield to maturity. Bonds sold below par mean that the market doesn’t like it too well for the issued yield, so the market is going to sell it off until the yield to maturity comes in line.

What you have to realize about the bond market is that they’re dealing with different dimensions than the stock market is. The bond market is all about pricing risk of default vs. yield, not pricing the opportunity of future earnings power in a stock.


16 posted on 05/22/2009 11:09:19 AM PDT by NVDave
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To: NeoCaveman

You can’t sell the $1,000 back to the seller (usg) right?


17 posted on 05/25/2009 10:00:25 PM PDT by lainie (The US congress is full to the brim of absolutely disgusting thieves who deserve humiliating ouster.)
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To: NVDave; NeoCaveman

I wanted to thank you both for your help. I appreciate it a lot.


18 posted on 05/26/2009 1:05:33 AM PDT by lainie (The US congress is full to the brim of absolutely disgusting thieves who deserve humiliating ouster.)
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To: lainie
You can’t sell the $1,000 back to the seller (usg) right?

The USG will redeem it for 1000 when the term is up, but will not buy it back early.

19 posted on 05/26/2009 5:46:54 AM PDT by NeoCaveman (control the teleprompter, control the world)
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To: NeoCaveman

That’s not entirely true - the Treasury does, in fact, call some bonds. They’ve called 30-year paper they wrote with VERY nice yields back in the early 80’s:

http://www.treasurydirect.gov/news/pressroom/pressroom_comcall011509.htm


20 posted on 05/26/2009 6:50:08 AM PDT by NVDave
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To: NVDave

Good point Dave. They can issue callable bonds. I do not believe they are issuing those now, though. They only issue those when there is a chance to refinance them into lower rates.

No chance of that in the future. IMHO


21 posted on 05/26/2009 7:19:37 AM PDT by NeoCaveman (control the teleprompter, control the world)
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To: NeoCaveman

Right — as of today’s historically (abnormally) low rates, they’re not issuing callable paper (that I know of yet).


22 posted on 05/26/2009 7:34:34 AM PDT by NVDave
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To: an amused spectator

I just saw this...unbelievable.


23 posted on 05/29/2009 8:50:47 PM PDT by I got the rope
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