Posted on 06/03/2011 4:32:38 PM PDT by Nachum
Just in case the broad speculator public did not get the message earlier this week after the CME lowered ES margins, just in time for the market to sell off and send realized vol surging (while of course ignoring plunging vol in gold, silver and all other commodities), the CME has completed the "paint by Rahmian numbers" puzzle, and has made clear which other asset class has the investment "go ahead" by the administration. As of a few minutes ago, the initial and outright margins for 10Y and 30 Y Treasury Bond Futures, 10 Year On The Runs, 7 Year Interest Rate Swaps and LT US Treasury Bond Futures were all lowered by up to 19%. Good thing the move comes 4 weeks before the end of QE 2. Were it to just precede, or, gasp, coincide with June 30, one may get ideas that this is not quote unquote risk management, such as that expressly not exhibited by the CME's refusal to hike ES margins following their cut, but is nothing but another glaringly obvious means of directing speculative capital into preferred asset classes.
Wish I understood what any of this means!
What does it mean? It means that the government is going broke and trying to bribe investors to put money in T-Bills.
“What does it mean? It means that the government is going broke and trying to bribe investors to put money in T-Bills.”
That’s one way to put it. The other is that given the events of last week (credit default swaps on gvt debt nullified by the EU), interest rates are going to climb on government debt everywhere. That scares the bejeezus out of the feds. This will, they think, lower interest rates on treasuries.
It will, for about a week. The price is that traders can now borrow more against the value of the treasury futures they are trading. So when interest rates do go up, the deleveraging will be harder and faster.
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