The American Bond Crisis

[jimmygu3]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Like I said, think. Under what circumstances would it benefit you to hold 0% 30 year T-bonds...

I know the answer, do you?

T-bonds at very low rates would be attractive if you were expecting long-term dollar price deflation. However I see no advantage to holding 0% T-bonds vs holding cash. In the event of rising rates and/or inflation, cash could be invested or spent. 0% bonds would fall like a rock.

But then again, I am not a shadowy, Yoda-like know it all.... :rolleyes:

[qwerty]

Why buy protection on Treasuries anyway?

I'm sure there's an arcane technical reason for the existence of credit default swaps on treasuries, but at first take I have to wonder.

If the US Government defaults, what sort of state is the seller of the credit protection going to be in? LOL

[bill]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Look at this scenario by Karl:

The Fed did what it always does - try to bail out the banks.

Who's in trouble?

Who the hell knows - they won't tell us!

I asked this question several times, “what banks”.

[jk]

Re: The American Bond Crisis

it must be easy to make money with the holy spirit as your investment advisor.:rolleyes:

[Sapiens]

Re: The American Bond Crisis

On the other side of the spectrum, take a look at this:

http://www.trunews.com/financial.htm

Urgent Financial Warning from Rick Wiles….







... In 1998 the Holy Spirit instructed me to pay close attention to credit derivatives. Back then, I had never heard of derivatives. The Holy Spirit told me that when the derivatives start to collapse, it is a sure sign that the American economy will collapse shortly thereafter.

For 10 years I have kept the Holy Spirit’s admonition fresh in my heart and mind. I have diligently monitored the insane explosion in the credit derivatives markets. I have often wondered when the collapse will happen.

As a watchman of the Lord, I am issuing an immediate warning: This is it! I repeat: this is it.

The US banking system will crash very soon. The credit crisis is out of control. Decades of greediness, dishonesty, lying, and thievery are coming to an end. A major bank will close its doors in the near future. The collapse will be followed by numerous other bank failures. The shockwave will reverberate around the world. Many wealthy people will lose hundreds of billions of dollars in assets. You will witness something unseen since the 1929 Great Depression. God’s judgment on America’s sin and rebellion is entering a new level of intensity. In addition to bank failures, some major ministries and mega-churches will also collapse soon. They will reap a whirlwind of calamity for pursuing prosperity and purpose instead of the Kingdom of Jesus.

Take immediate precautionary measures! Do not hesitate. Withdraw your money from any financial institution that is heavily exposed to credit derivatives. Consider depositing your funds in locally-owned, prudently managed banks and credit unions that have little or no exposure to derivatives and/or subprime mortgages.

Here is the list of the Top 25 US banks with exposure to credit derivatives. (PDF file) Scroll down to pages 21-25. http://www.occ.treas.gov/ftp/release/2007-137a.pdf

Withdraw as much cash as possible. Consider all possibilities: gold, silver, offshore deposits in other currencies. Purchase food and necessities immediately. Batten down the hatches and prepare to ride out the storm. Do not tell anybody about your emergency preparations! Recall the images of New Orleans during Hurricane Katrina.

Most of all: Remain calm. If your faith and confidence is in the Lord Jesus Christ, you have nothing to fear. The Central Bank of Heaven is secure. There will be no “bank runs” in Heaven. If you have been faithfully depositing funds in Heaven by giving to soul-winning ministries and the care of orphans and the poor, God himself will see to it that you are cared for during this economic storm. If you haven’t been depositing your money into the Kingdom, there’s very little time left before you suddenly lose your earthly treasure. How long will you cling to your temporal wealth and ignore the Holy Spirit’s instruction to give substantial sums of money to the preaching of the Kingdom?

I repeat my urgent warning: This is it. Take immediate precautionary measures to cope with the financial tsunami that will crash upon America’s shores. Stay calm. Repent of your sins. Trust Jesus.


“Believe in the Lord your God, shall ye be established; believe His Prophets, so shall ye prosper.” (2 Chronicles 20:20)



Audio: March 12, 1933… FDR’s speech announcing closing of all banks http://www.npr.org/templates/story/s...70&ft=1&f=1003

YouTube video: CNN commentators discuss possibility of another Great Depression
http://www.youtube.com/watch?v=dR7h8NBQU3E

YouTube: Video and pictures of the first Great Depression
http://www.youtube.com/watch?v=Ig5Qg-_jvaw

[Sapiens]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Should I buy a gun too?

Sure, why not.

Look at this scenario by Karl:

http://market-ticker.denninger.net/


Tuesday, March 11, 2008
The Short Bus Rolls Again

Let's do The Fed's action today.

The ostensible reason was to "liquefy" agency and other "AAA" securities.

Really?

Let's talk about reality.

Reality is this:

You short something it is to sell it to someone else. One of the ways the primary dealers make their money is by shorting Treasuries into the market, borrowing them from The Fed and then generating carry off the money.

Over the last six months the primary dealers have borrowed an insane amount in Treasuries and are short in aggregate close to $100 billion of them!

What's worse, they're long all the other debt instruments, lots of it involuntarily! Like, for example, LBO debt and mortgage securities they can't sell into the market.

So the primary dealers are short Treasuries, which are going up in price, and long everything else which is going straight in the toilet!

THE PRIMARY DEALERS WERE CAUGHT IN A CREDIT MARKET SHORT SQUEEZE!

You've seen it and might have had it happen to you. Been short home builders in the last few months when one of the "Quant" unwinds happens? You know what happens to the market for those stocks, right?

The price rockets higher.

Ok, what happens to treasuries when there is a huge demand? There is a similar rocket shot in price and down in yield.

Now think about how badly it sucks to be you if you're the idiot who packaged up all this crap debt and are watching it dwindling towards zero in value, while what you shorted in an attempt to earn carry is rocketing higher as everyone you sold your crap to is dumping it on the market and fleeing into what you're short!

So what really happened today?

We were almost certainly on the verge of the collapse of one or more of the primary dealers AND international banks FOR THE SECOND TIME IN JUST A FEW DAYS!

Remember, The Fed just took an "extraordinary" action in expanding the TAF!

Their only defense the primary dealers had to being forced to buy back those treasuries at a huge loss is to borrow even more of them from The Fed.

BUT THEY WERE OUT OF COLLATERAL TO POST OTHER THAN THESE MORTGAGE AND OTHER "AAA" BONDS!

What's worse, this short squeeze was being fed by people who did NOT want agency paper at any price; they were generating it by dumping the agencies and buying Ts. They have figured out that its contaminated (see below) and are freaking out about the potential for serious shortfalls or outright defaults.

Remember - "AAA" means "as safe as the US Government."

Except that lately, we've learned that its not - that the claim is a lie.

So The Fed decides that they're going to put in place a "swap" and let the primaries exchange Treasuries (of which they have several hundred billion) for "Agency and other AAA" paper - mortgages. The intent is to "pair" the two, thereby halting the spread widening and thus stopping the short squeeze.

The action today was nothing more or less than an attempt to stabilize Agency spreads which were blowing wide in a historic short squeeze that was threatening to collapse major financial institutions!

Yet if you listen to CNBS, including Fast Money, you hear these guys saying that "The Fed Injected 200 billion in money."

NO THEY DID NOT! IN FACT, THEY EXPLICITLY INJECTED EXACTLY ZERO DOLLARS INTO THE SYSTEM; A SWAP OF ONE SECURITY FOR ANOTHER OF IDENTICAL SIZE AND FACE IS A BIG FAT NET ZERO IN TERMS OF BALANCE SHEET AND MONEY SUPPLY IMPACT.

THE FX MARKETS "GOT IT" IMMEDIATELY BUT NOBODY ELSE DID!

The Fed did what it always does - try to bail out the banks.

Who's in trouble?

Who the hell knows - they won't tell us!

Gee, nothing like Reg-FD, Form 8Ks and the like, eh?

Nothing like actually following the law and disclosing material adverse corporate developments, yes? I mean hell, even Thornburg did file one, even if late.

And while we're at it, let's ask the next AND MOST IMPORTANT question:

What the hell is The Fed doing allowing their regulated primary dealers, who they are responsible for, to increase their short positions by TEN TIMES in Treasuries over the last few months WHILE THEY ARE ACTIVELY ATTEMPTING TO DRIVE TREASURIES UP IN PRICE BY ADDING LIQUIDITY AND LOWERING THE FFT?

What the hell is wrong with BEN BERNANKE and THE FED GOVERNORS?

LET ME BE BLUNT: They sat on their hands WHILE THE INSTITUTIONS THEY ARE RESPONSIBLE FOR multiplied their short positions BY MORE THAN TEN TIMES in securities THE FED IS FORCING UP IN PRICE and BOTH said nothing and DID nothing about it?

Then, when the INEVITABLE short squeeze that results from such an act of pure INSANITY ensues we get THIS as a response, along with a flat-out MISDIRECTION, otherwise called a LIE, as to what was REALLY going on and WHY with exactly ZERO clarification from The Fed as to both the true reason for the action and the fact that it is a big fat net zero on the monetary base?

But don't worry, its all ok. The Fed made it so, and the market believed it, up 416 today on the Dow.

The only remaining question is how big of a sucker YOU are for the LIES of the mainstream media, corporate executives who should be filing 8Ks by the truckload and The Fed itself who willfully ignored the ramping short positions in securities that are attempting to drive up in price!

Yes, that's the question folks.

Are you a sucker?

Because if you think this was about Fannie and Freddie paper being "money good" but the market "unreasonably" discounting its price, you are soon to find out that indeed you are that sucker. After all, the ABX says that "AAA" paper is worth..... wait for it..... somewhere between 53 and 70 cents on the dollar, depending on the vintage.

The Truth is that Fannie and Freddie paper is contaminated with mortgages that have "Back End" ratios as high as 65% in some cases, nearly TWICE the historical sound limit for mortgage lending. This is not commonly known by investors; most think "Agency" paper is "conservatively" underwritten.

The Truth is that lots of mortgages placed with less-than-accurate appraisals and documentation (think "Streamline" or "Fast and Easy" refinances) are sprinkled through all of that mortgage paper. Again, this is not common known by investors; most think "Agency" paper is "conservatively" underwritten.

The Truth is that The Fed did not inject one thin dime of anything into the market today and this had exactly nothing to do with Agency paper "directly"; it was nothing more or less than an attempt to halt a short squeeze that was threatening to destroy their primary dealers.

The Truth is that this is the second time in just a few days that the entire primary dealer system has threatened to explode in everyone's face. READ THAT AGAIN FOLKS: IN THE SPACE OF JUST A FEW DAYS THE FED HAD TO RESCUE THE PRIMARY DEALERS AND BANKS ***TWICE***!

The Truth is that despite the banks and primary dealers being in such poor condition that they had to be rescued TWICE in the space of the last FEW DAYS "investors" bid up The Dow by more than four hundred points today. (Hint: If you have two heart attacks in three days' time, what do you suspect your risk is of a third - fatal - one in the next few days or weeks?)

The Truth is that The Fed has proven they will look the other way, allow, and even encourage their primary dealers to do stupid things while they intentionally drive the price of securities in the exact wrong direction, then come up with "sticksave" after "sticksave" when the unintended consequences are served upon them in a raw attempt to avoid the need to actually force those banks to file 8Ks and engage in what should be Reg-FD-mandated disclosure of the crap on their balance sheets.

The Truth is that The Fed pulled the pin on the next credit market grenade today and stuck it between its legs. It is now praying that it can hold the spoon tight and if EITHER long-bond yields rocketshot (that is, a "disorderly" unwind of people who are in them ensues) OR the spreads between them and agency paper blow further, the grenade will go off, destroying the basis in the swaps they engaged in today. In that circumstance either the primary dealers will be directly trashed or The Fed will have to throw them under the bus on purpose to avoid its own destruction.

WHEN (not if) these truths become apparent to everyone else, don't say you weren't warned.

[GRG55]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Like I said, think. Under what circumstances would it benefit you to hold 0% 30 year T-bonds...

I know the answer, do you?

Holding a sovereign bond is a claim on the future productive output of that nation. And a bet on the future political stability and security of that nation, so you are likely to be able to collect on that debt.

Zero interest US T-bonds imply that all other alternatives in the world are perceived to be worse in respect to the above.

I am pleased to hear that you have enjoyed spending your time, having fun dreaming up scenarios where the rest of the world goes to hell and the USA is the only remaining safe haven.

Should I buy a gun too?

[Sapiens]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Are you planning to lend your money to the Government of the US of eh for 30 years at zero interest? If not, then who do you think will?

Like I said, think. Under what circumstances would it benefit you to hold 0% 30 year T-bonds...

I know the answer, do you?

[GRG55]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Ask youself, what would happen if yields collapsed to 0% on T-bills and bonds? Bankers don't eat if they can't charge enough interest to cover their expenses.

Don't fall for the charade.

Are you planning to lend your money to the Government of the US of eh for 30 years at zero interest? If not, then who do you think will?

[Sapiens]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Anybody who was holding the sovereign debt of the US of eh yesterday morning got hammered...

Ask youself, what would happen if yields collapsed to 0% on T-bills and bonds? Bankers don't eat if they can't charge enough interest to cover their expenses.

Don't fall for the charade.

[GRG55]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

yes, but prior to the hammering treasuries had had quite a ride upward as part of the flight to safety. take a look at http://www.itulip.com/forums/showthread.php?t=3460 for another view of what's been happening in the treasury market.

Holders of bonars had quite a ride upward too. Between 1st Q 1995 and mid-2001...prior to the hammering.

History may not repeat, but the Fed is doing the Treasury market no favours.

[jk]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

Well they've already trashed the "real time" bonar (Federal Reserve Notes), trashing the "bonar futures" market (Treasuries) would seem but "one small step for Ben".

Anybody who was holding the sovereign debt of the US of eh yesterday morning got hammered...

yes, but prior to the hammering treasuries had had quite a ride upward as part of the flight to safety. take a look at http://www.itulip.com/forums/showthread.php?t=3460 for another view of what's been happening in the treasury market.

[GRG55]

Re: CDS: 10yr Treasuries riskier than German Govt Bonds

"`Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.''

I read something five years ago which predicted in future the Fed buying junk bonds, equities - the lot - in order to support those markets. But they had to stop when the treasury auctions started to buckle. The buckle because lenders to the US Government realize that they are in fact lending to corporations, banks, etc. or indeed some kind of equity position, and decide to cut out the middle-man.

March 11 (Bloomberg) -- The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show.

Contracts on 10-year Treasuries traded at a record 16 basis points earlier today, compared with 15 basis points on German government notes, according to data compiled by BNP Paribas SA. In July, U.S. credit-default swaps were at 1.6 basis points, compared with 2.5 basis points on bunds.

Federal Reserve Chairman Ben S. Bernanke announced plans today to lend as much as $200 billion of Treasury notes in exchange for debt including private mortgage-backed bonds to avert an exodus from the securities that threatens to deepen the housing slump and economic slowdown.

``The U.S. government is not immune from the consequences of the credit crisis,'' said Fabrizio Capanna, BNP's head of high-grade corporate trading in London. ``Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.''

Well they've already trashed the "real time" bonar (Federal Reserve Notes), trashing the "bonar futures" market (Treasuries) would seem but "one small step for Ben".

Anybody who was holding the sovereign debt of the US of eh yesterday morning got hammered...

[metalman]

Re: The American Bond Crisis

"The American Bond Crisis"

thank you for finally giving this crisis a name. i was gitting sick and tired of the bogus "subprime crisis" title.

what took you so long?

[qwerty]

CDS: 10yr Treasuries riskier than German Govt Bonds

"`Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.''

I read something five years ago which predicted in future the Fed buying junk bonds, equities - the lot - in order to support those markets. But they had to stop when the treasury auctions started to buckle. The buckle because lenders to the US Government realize that they are in fact lending to corporations, banks, etc. or indeed some kind of equity position, and decide to cut out the middle-man.

March 11 (Bloomberg) -- The risk of losses on U.S. Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves, credit-default swaps prices show.

Contracts on 10-year Treasuries traded at a record 16 basis points earlier today, compared with 15 basis points on German government notes, according to data compiled by BNP Paribas SA. In July, U.S. credit-default swaps were at 1.6 basis points, compared with 2.5 basis points on bunds.

Federal Reserve Chairman Ben S. Bernanke announced plans today to lend as much as $200 billion of Treasury notes in exchange for debt including private mortgage-backed bonds to avert an exodus from the securities that threatens to deepen the housing slump and economic slowdown.

``The U.S. government is not immune from the consequences of the credit crisis,'' said Fabrizio Capanna, BNP's head of high-grade corporate trading in London. ``Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.''