Treasuries

[c_land]

Welcome to QT?

https://twitter.com/i/web/status/1569344015715147777

 

[MSum661]

Welcome to QT?

https://twitter.com/i/web/status/1569344015715147777

Welcome to zero bid!!
The sale of $32 billion in 10Y paper today was even uglier.

And just think for a second......they're just getting started.

 

[MSum661]

 

[c_land]

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Thanks, I haven't been able to look up results today yet.

 

[jailbird141]

So what does this mean? Sorry, not very knowledgable in the bond market

 

[Ace in the Hole]

So what does this mean? Sorry, not very knowledgable in the bond market

 

[c_land]

So what does this mean? Sorry, not very knowledgable in the bond market

It means alot of things to different people depending on which lens you are viewing the market. I'll take a crack at it from a high level view.


Treasuries are how the government partly funds itself.

The federal reserve isn't buying treasuries any longer as a part of QT, so the fed isn't "printing" new dollars to fund the government. The fed has been a large buyer of treasuries really since the financial crisis, creating some artificial demand.

Treasuries set the "risk free" rate that a lot of other debt is priced from with a spread. Treasuries are subject to supply and demand dynamics, so as the supply increases or demand falls, the price falls and yield increases accordingly. Higher yields = generally higher costs of debt. Higher costs of debt can be an issue in a indebted economy like ours.

The brandon admin is also running some ridiculous deficits which will require the treasury to issue more debt (treasuries) to fund that deficit. They are doing that has the fed has stepped away from buying, and other institutions will need to step up and buy. It is yet to be fully seen what price/yield will be sufficient to entice other buyers to purchase the additional supply.

 

[jailbird141]

It means alot of things to different people depending on which lens you are viewing the market. I'll take a crack at it from a high level view.


Treasuries are how the government partly funds itself.

The federal reserve isn't buying treasuries any longer as a part of QT, so the fed isn't "printing" new dollars to fund the government. The fed has been a large buyer of treasuries really since the financial crisis, creating some artificial demand.

Treasuries set the "risk free" rate that a lot of other debt is priced from with a spread. Treasuries are subject to supply and demand dynamics, so as the supply increases or demand falls, the price falls and yield increases accordingly. Higher yields = generally higher costs of debt. Higher costs of debt can be an issue in a indebted economy like ours.

The brandon admin is also running some ridiculous deficits which will require the treasury to issue more debt (treasuries) to fund that deficit. They are doing that has the fed has stepped away from buying, and other institutions will need to step up and buy. It is yet to be fully seen what price/yield will be sufficient to entice other buyers to purchase the additional supply.

So what should the average guy be looking at? Meaning, will this speed up going into a recession? Will this increase inflation? Or is this something that will have little effect on me if I do not buy bonds? I apologize, I don't mean for this to turn into an economics lesson but I am curious as to how it will or can possibly effect me. As for me, I am debt free and the only bills I have are my monthly utilities so most of what I make goes into savings.

 

[LargeOrangeFont]

So what should the average guy be looking at? Meaning, will this speed up going into a recession? Will this increase inflation? Or is this something that will have little effect on me if I do not buy bonds? I apologize, I don't mean for this to turn into an economics lesson but I am curious as to how it will or can possibly effect me. As for me, I am debt free and the only bills I have are my monthly utilities so most of what I make goes into savings.

Keep saving money because things will get worse before better.

 

[c_land]

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Was the 10Y a reopening auction? I thought the fed does not bid reopening auctions?

 

[c_land]

So what should the average guy be looking at? Meaning, will this speed up going into a recession? Will this increase inflation? Or is this something that will have little effect on me if I do not buy bonds? I apologize, I don't mean for this to turn into an economics lesson but I am curious as to how it will or can possibly effect me. As for me, I am debt free and the only bills I have are my monthly utilities so most of what I make goes into savings.

@2Driver has posts earlier in this thread that I would consider if I was playing.

 

[2Driver]

Yeah ive been just rolling 3 month treasuries with my cash. Its super easy at Schwab. 3 months is about 3% 6 month is 3.5% yield. Why in the world would you buy a 2 year when a 6 month is the same unless you thought rates have peaked which they haven’t.

Its nice because when they come due interest rates have gone up so they go back in at the higher rate after 3 months.
Treasuries are state tax free too, at least in AZ they are
I have some other idle cash in Schawb money market paying 2.5%.

 

[DrunkenSailor]

Looks like the fed not buying bonds is gonna start driving bond yields up.

So what should the average guy be looking at? Meaning, will this speed up going into a recession? Will this increase inflation? Or is this something that will have little effect on me if I do not buy bonds? I apologize, I don't mean for this to turn into an economics lesson but I am curious as to how it will or can possibly effect me. As for me, I am debt free and the only bills I have are my monthly utilities so most of what I make goes into savings.

It's a trickle down. Treasuries are used as a benchmark for securitizations. If a securitization bond has a 3 year weighted average life the 3 year Treasury is a good benchmark to build a bond yield spread on top of. Think of it like an arm loan where you have an index plus a premium or margin. When Treasury auctions have liquidity issues it points to liquidity issues for securitization bonds.

Every loan from cars to student to mortgage all end in securitization.

 

[530RL]

Yeah ive been just rolling 3 month treasuries with my cash. Its super easy at Schwab. 3 months is about 3% 6 month is 3.5% yield. Why in the world would you buy a 2 year when a 6 month is the same unless you thought rates have peaked which they haven’t.

Its nice because when they come due interest rates have gone up so they go back in at the higher rate after 3 months.
Treasuries are state tax free too, at least in AZ they are
I have some other idle cash in Schawb money market paying 2.5%.

The treasury play is certainly a safe relative short term bet but at the end of the day it is still a 3.5% annual loss in real dollars if inflation is 7.

Sooner or later one has to accept that annual loss in real return or take a little more risk with an investment priced with a longer duration.

There is no free lunch.

 

[coolchange]

But right now in the short term, I guess I’d rather get in the ring knowing I was only getting a half a beating, than stay out and get my ass kicked or get in and be annihilated. This probably the last time in my lifetime that these opportunities will present, but I ( novice) think things haven’t even begun to unhinge yet.

 

[arch stanton]

so this means the interest rate will have to go up to the point that retirement funds and other big money investors would rather buy a treasury than stocks or property or buy private debt.
how hi does the prime rate have to be to slow private sector growth and get someone to buy treasuries in the quantity needed to fund the government ?
This of course will reduce funds available for all the rest of us unless you are willing to pay more than a treasury pays what would the spread be in normal times and what will the spread be in bad economy, i'll guess 10 year end up at 8% and 3 year at 6.5% and if you have good credit you will pay 11% or more and if you have crappy credit 13% or more.

what do those of you that are in the money business think is coming at us.

 

[Gonefishin5555]

Rates were pushed artificially low by the govt buying so logic tells us they will have to go higher. I have clients doing 1031 exchanges and looking at yields in these Delaware special trusts at 3-4%. I think yields on T-bills historically have some kind of relationship to inflation so I wonder what the medium to long term inflation outlook is right now. The other thing is that people have endured a long period of almost no interest being paid on their money in savings. If you start throwing 5-6% interest on t-bills at them there will be super strong demand.

 

[MSum661]

CPI read this morning just lit the match.
Corporate borrowing and every other form of borrowing and lending will be affected for the foreseeable future.

The great news is the flip side of this new normal are all the other available ways to take advantage of solid growth.
Its about time! Cheers!

 

[MSum661]

75 bps hike is now 100% priced in.
21% chance for 100 bps hike.

Fed is also in a quiet period until the Sept. 21st FOMC meeting.

 

[DrunkenSailor]

75 bps hike is now 100% priced in.
21% chance for 100 bps hike.

Fed is also in a quiet period until the Sept. 21st FOMC meeting.

Thank God the fed chattering has been more damaging than the actual rate hikes.

 

[MSum661]

Thank God the fed chattering has been more damaging than the actual rate hikes.

 

[MSum661]

Market now has a 4th consecutive 75 bps hike for Nov. 2nd to 3.75% - 4.00% above a 50% chance.
Appears they want to break something trying to get the "real" economy back to normal.
Question is....is it enough? We'll see.

 

[2Driver]

The treasury play is certainly a safe relative short term bet but at the end of the day it is still a 3.5% annual loss in real dollars if inflation is 7.

Sooner or later one has to accept that annual loss in real return or take a little more risk with an investment priced with a longer duration.

There is no free lunch.

True, but there is too much risk now to be in the market for me to try to make an extra 3% only to end up losing 20%. I still have 2 substantial hard money loans out at 10%. If and when they payoff very little of it will be going back out.

Heres the real problem as I see it.

The Fed can’t do this on their own with interest rates and QT as their only tools. Interest rates won’t solve inflation when 20 people need a car and 2 cars are available or when businesses can’t function property because there aren’t people willing to work. The Fed has ABSOLUTE ZERO cooperation from congress on tackling this unusual complex inflation scenario, as a matter of fact they are making it worse. If the Fed thinks they can solve the worker shortage and supply chain shortages with interest rates as ther only tool, then the Fed will crush the economy in the process and we will have much higher rates then we ever thought.

Who's in charge? The guy that did nothing for a year but to say inflation was a temporary self-correcting event.

 

[DrunkenSailor]

Cpi numbers were double the forecast. Bonds are reacting poorly. 3 year is up 15bps+. More pain coming.

 

[HTMike]

Where does all this end ? Where is the smart play for cash in the coming 12 months ?

 

[regor]

 

[ElAzul]

Where does all this end ? Where is the smart play for cash in the coming 12 months ?

Convert them to denair's hide in mattress at this point

 

[c_land]

https://twitter.com/i/web/status/1569725444550791168

I am furiously refreshing WSJ looking for Chairman Nick Timiraos to announce the size of next week's rate hike lol

 

[MSum661]

https://twitter.com/i/web/status/1569725444550791168

I am furiously refreshing WSJ looking for Chairman Nick Timiraos to announce the size of next week's rate hike lol

Geeeze, crazy.....what else do they know that is not being publicly disclosed?
Its not the percentage of the potential rate hikes coming that is a mystery, its the velocity.
That, and credibility deterioration.

 

[c_land]

Geeeze, crazy.....what else do they know that is not being publicly disclosed?
Its not the percentage of the potential rate hikes coming that is a mystery, its the velocity.
That, and credibility deterioration.

and it sure looks like high velocity

 

[MSum661]

and it sure looks like high velocity

There it is!!!

 

[c_land]

Looking better compared to yesterday

https://twitter.com/i/web/status/1569733359697334275

 

[MSum661]

Looks like the fed not buying bonds is gonna start driving bond yields up.



It's a trickle down. Treasuries are used as a benchmark for securitizations. If a securitization bond has a 3 year weighted average life the 3 year Treasury is a good benchmark to build a bond yield spread on top of. Think of it like an arm loan where you have an index plus a premium or margin. When Treasury auctions have liquidity issues it points to liquidity issues for securitization bonds.

Every loan from cars to student to mortgage all end in securitization.

Could be they know the markets will shift from pricing inflation risks to pricing default risks.

 

[DrunkenSailor]

Modeled default has been laughable. When defaults kick up above the modeled 1% there will be some serious liquidity issues.

Could be they know the markets will shift from pricing inflation risks to pricing default risks.

 

[caribbean20]

OK, so 2 yr T Note yield hitting 3.7% finally got my attention for idle cash. Called my investment guy and he suggested 1 yr instead, they expect 2 yr yields to keep rising and only a quarter point difference.

Quite frankly, I’m licking my chops. If we can get 3.5% ++ on our money into the foreseeable future, I’m fine with that. Inflation is all about your station in life. For us retired old timers, it’s just not a big deal.

 

[regor]

For us retired old timers, it’s just not a big deal.

Tell that to someone living off SS.

They made their choices no doubt, but it's a BIG deal.

Fed Mouthpiece Speaks: "At LEAST 75bps Next Week" Sends Odds Of 100bps Rate Hike to 47%​

"The acceleration in inflation last month clinches the case for the Federal Reserve to lift interest rates by AT LEAST 0.75 percentage point at its meeting next week and raises the prospect of hefty increases continuing in coming months."

TUE SEP 13, AT 11:02 AM

 

[caribbean20]

Tell that to someone living off SS.

They made their choices no doubt, but it's a BIG deal.

Fed Mouthpiece Speaks: "At LEAST 75bps Next Week" Sends Odds Of 100bps Rate Hike to 47%​

"The acceleration in inflation last month clinches the case for the Federal Reserve to lift interest rates by AT LEAST 0.75 percentage point at its meeting next week and raises the prospect of hefty increases continuing in coming months."

TUE SEP 13, AT 11:02 AM

Oh, my mistake, thought this was a BOATING enthusiast website. If yer a boater and relying 100% on SS . . .

 

[2Driver]

OK, so 2 yr T Note yield hitting 3.7% finally got my attention for idle cash. Called my investment guy and he suggested 1 yr instead, they expect 2 yr yields to keep rising and only a quarter point difference.

Quite frankly, I’m licking my chops. If we can get 3.5% ++ on our money into the foreseeable future, I’m fine with that. Inflation is all about your station in life. For us retired old timers, it’s just not a big deal.

6 month is 3.7% Things are flying I wouldn’t tie up my money just yet past 6 months. Does your broker take some of that for his fee?

 

[caribbean20]

6 month is 3.7% Things are flying I wouldn’t tie up my money just yet past 6 months. Does your broker take some of that for his fee?

No, he doesn’t charge a fee on fixed income, only a small commission for buying T Bills on the secondary market. It was my idea, not his.

Only talking about pocket change for now, but appreciate your opinion.

 

[MSum661]

A Jfyi...

Tomorrows economic releases:
Mortgage Applications,
PPI Ex Food & Energy YOY,
and US Crude oil inventories.

 

[regor]

Oh, my mistake, thought this was a BOATING enthusiast website. If yer a boater and relying 100% on SS . . .

I'd venture to say that there are some that rely on it and have a boat, but your point is acknowledged.

 

[pronstar]

how hi does the prime rate have to be to slow private sector growth and get someone to buy treasuries in the quantity needed to fund the government ?

When interest is lower than inflation, we’re getting paid to borrow money.

IMHO significant slowing won’t happen until the rate of inflation is lower than the rate of interest.

 

[caribbean20]

I'd venture to say that there are some that rely on it and have a boat, but your point is acknowledged.

To be clear, that wasn't my main point, regarding inflation and SS, "inflation affects everyone differently." My INTENDED main point was for those who have idle cash sitting there earning zero %, maybe after lightening up on equities and seemingly no better place to put it (remember, short term rates were . . . like 0.25% not long ago), 3.5%++ RISK FREE today is looking darn good right about now. Especially for such short duration money.

 

[CALEXODUS]

No, he doesn’t charge a fee on fixed income, only a small commission for buying T Bills on the secondary market. It was my idea, not his.

Only talking about pocket change for now, but appreciate your opinion.

Can you buy these on Treasurydirect at no cost like others ?

 

[530RL]

For those interested, this paper on supply shocks and their effects may be worth reading.

https://www.nber.org/system/files/chapters/c9160/revisions/c9160.rev2.pdf

 

[2Driver]

Can you buy these on Treasurydirect at no cost like others ?

If you have a broker account where you buy stocks and bonds you can buy them there.

Scwab is super easy. Just be sure you sort by YTM yield to maturity because the intial rates are all over the place since you are buying open market you may be buying a 2 year maturing in 6 months that was originally 1%. Bonds are a bit different.

 

[caribbean20]

Can you buy these on Treasurydirect at no cost like others ?

I don't know about Treasury Direct but as 2Driver said, you can purchase individual issues on Fidelity and Schwab for no commission. I just got off the phone with both of them and they walked me through it. They are zero coupon bills that you purchase at a discount and you get face value at maturity. I've never traded fixed income before so this was new to me. Also as 2Driver pointed out, 6 month maturity seems to be the sweet spot today.

 

[Orange Juice]

It’s different, when interest rates go up, and you’ve locked in a 30 year mortgage below 4%, or it’s paid it off. No debt.

I’m not worried at this point.

 

[Gonefishin5555]

I don't know about Treasury Direct but as 2Driver said, you can purchase individual issues on Fidelity and Schwab for no commission. I just got off the phone with both of them and they walked me through it. They are zero coupon bills that you purchase at a discount and you get face value at maturity. I've never traded fixed income before so this was new to me. Also as 2Driver pointed out, 6 month maturity seems to be the sweet spot today.

Its the same on E*trade. I pulled them up just to check out the pricing. May consider them now that the yields are greater than .001 percent

 

[Orange Juice]

Its the same on E*trade. I pulled them up just to check out the pricing. May consider them now that the yields are greater than .001 percent

Yields are still quite low, in comparison to the 9% jump in Social Security income next year. How often has your company gave a 9% across the board cola raise?

Next year inflation #’s will be back to normal, but the interest rates will continue to raise. Like KC in what you owe. It’s going to be a long 7 years of high interest rates, and slow growth.