BLOATED U.S. DEBT BURDEN DRIVES BOND ROUT
May 28th, 2009A lot of stories show up on Cryptogon. They look pretty much alike. There’s a title and some text, or maybe a video. They slide on down the page and disappear into the archives.
Please understand that this situation with the U.S. government bonds is different than all the rest of the stories. This is the main mechanism that keeps the matrix operating on this planet.
The situation became an emergency when the Fed started buying the bonds when there weren’t enough buyers in the market. That was “it” right there. The patient became a corpse at that point, but the limbs continued to flail around.
Some might look at the corpse writhing around and think that it was alive. The same people have been buying U.S. government bonds.
Via: Reuters:
U.S. government bonds came under heavy pressure again on Wednesday as investors worried about the ever-expanding amount of debt needed to fund a record $1.75 trillion budget deficit.
The downdraft in bonds was so heavy it actually dragged down the U.S. stock market, inverting the more normal relationship where U.S. Treasuries tend to track equities.
Selling by mortgage investors, who are often forced to sell U.S. Treasuries to hedge their positions, when yields surpass key levels, added renewed impetus to the downturn.
The decline was largely concentrated in longer-dated maturities, driving the gap between short- and long-term rates, known as the yield curve, to its steepest level on record.
“You’re exploding the issuance at a time when demand for the product you’ve got is a best flat,” said Malcolm Polley, president and chief investment officer at Stewart Capital Advisors. “So rates are going to go up. It’s simple economics.”
Benchmark 10-year notes were down over 1-16/32 and yielding 3.74 percent, up nearly 20 basis points in just one day and over 1.25 percentage points in just six weeks. The spread between 10- and two-year notes widened to 275 basis points, the largest ever gap.
The market has become increasingly bearish since mid-March, when the Federal Reserve first announced its intention to buy up to $300 billion of U.S. Treasuries over six months.
The rise in yields in recent weeks was at first due to signs of economic stabilization and less need for a safe-haven, but recently the trend has shifted toward skittishness over the huge U.S. government borrowing requirement this year.
The Fed bought $6 billion in Treasuries on Wednesday alone, but that was not nearly enough to stem the tide.
Mortgage servicers often sell Treasuries to hedge against the unwanted lengthening of their portfolio’s duration as yields head higher and curtail home loan refinancing activity.
the Federal Reserve System
dollar hegemony and reserve-currency status
the never-ending ability to fund ever-increasing levels of debt
once these things have gone, it’s all over.
until now, it’s just been some kid yelling “the emperor’s got no clothes on!”
at some stage it becomes impossible to keep most people believing the pronouncements from on high: “What a fine suit of clothes you have on, Great Emperor! Bravo!”
yeah, the patient’s dead. decomposition comes next.
For those not familiar with the financial markets, this post by Karl Denninger might help explain how insiders are reading this move:
http://market-ticker.denninger.net/archives/1066-It-Is-Failing-ALL-OF-IT.html