http://globaleconomicanalysis.blogspot.com/2012/07/treasury-yields-near-record-lows-amid.html
Chart above shows closing yield for the month except the front month is current.
Treasuries Approach Record Low After Note Auction
Bloomberg reports Treasuries Approach Record Low After Note Auction
Submitted by Tyler Durden on 07/11/2012 10:06 -0400
Treasury Yields Near Record Lows Amid "Suspicious" Direct Bidder Demand; Suspicion Easily Explained
Curve Watchers Anonymous is investigating the yield curve in the wake of reported "suspicious" bids for treasuries at the latest auction.
US Treasury Yield Curve Since 2003
click on chart for sharper imageLegend
US Treasury Yield Curve Since 2003
click on chart for sharper imageLegend
- $IRX: 3-Month Discount Rate
- $FVX: 5-Year Treasury Note
- $TNX: 10-Year Treasury Note
- $TYX: 30-Year Bond
Chart above shows closing yield for the month except the front month is current.
Treasuries Approach Record Low After Note Auction
Bloomberg reports Treasuries Approach Record Low After Note Auction
Treasury 10-year note yields approached all-time lows after the U.S. sold $21 billion of the securities at a record rate and minutes from the Federal Reserve’s last meeting showed some members favor more stimulus.
The auction attracted record high demand from a group of investors that include pension funds and insurance companies. The notes drew a yield of 1.459 percent, compared with a forecast of 1.518 percent in a Bloomberg News survey of seven of the Fed’s 21 primary dealers. The previous record low auction yield of 1.622 percent was set last month.
Demand ‘Suspicion’
The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.61, the highest since April 2010, compared with 3.06 percent in June and an average of 3.07 for the past 10 sales.
Direct bidders were awarded 45.4 percent of the auction, the most for any offering of U.S. government coupon securities on record. The $9.53 billion purchased was $5.16 billion more than at the previous offering on June 13. The previous record for direct demand at a 10-year note sale was 31.7 percent at the August 2011 auction.
“We don’t know and we won’t know” the source of that demand, said David Ader, head of U.S. government-bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “Given the sheer size, it’s unlikely a dozen people all decided to come in and it just is coincidental. So the shadow of suspicion is cast on a player or two.”
Since the start of 2012, direct bidders have won an average 21.1 percent of the debt sold at Treasury 10-year auctions. The next highest direct demand has come at 30-year bond sales, with an average award to direct bidders of 14.9 percent.
Indirect bidders, an investor class that includes foreign central banks, purchased 40.6 percent of the securities at today’s sale, compared with an average of 42.2 percent for the past 10 offerings of 10-year notes.
Suspicion Explained
For starters, the US is in a recession (see Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness; Permabears?), so demand for treasuries should rise.
However, that's likely not the totality of the explanation. Foreign demand from China certainly plays a part.
Wait you say, shouldn't foreign demand be indirect bidding? In the case of China, the answer is no.
Reuters reported on May 21, 2012 U.S. lets China bypass Wall Street for Treasury orders
Yesterday I wrote China Import Growth Plunges, Trade Surplus Hits 3-Year High; Will US Response Be Protectionism? Is China Headed For a Deflationary Shock?
In light of all of the above, I have a few questions:
For starters, the US is in a recession (see Case for US and Global Recession Right Here, Right Now; Recognizing the Limits of Madness; Permabears?), so demand for treasuries should rise.
However, that's likely not the totality of the explanation. Foreign demand from China certainly plays a part.
Wait you say, shouldn't foreign demand be indirect bidding? In the case of China, the answer is no.
Reuters reported on May 21, 2012 U.S. lets China bypass Wall Street for Treasury orders
China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government, according to documents viewed by Reuters.
The relationship means the People's Bank of China buys U.S. debt using a different method than any other central bank in the world.
The documents viewed by Reuters show the U.S. Treasury Department has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.
China can now participate in auctions without placing bids through primary dealers. If it wants to sell, however, it still has to go through the market.China Trade Surplus Hits 3-Year High
The change was not announced publicly or in any message to primary dealers.
"Direct bidding is open to a wide range of investors, but as a matter of general policy we do not comment on individual bidders," said Matt Anderson, a Treasury Department spokesman.
While there is been no prohibition on foreign government entities bidding directly, the Treasury's accommodation of China is unique.
Yesterday I wrote China Import Growth Plunges, Trade Surplus Hits 3-Year High; Will US Response Be Protectionism? Is China Headed For a Deflationary Shock?
In light of all of the above, I have a few questions:
- What is China going to do with a record trade surplus? The answer is buy more US treasuries.
- What are pension plans and corporations going to do if the US is headed into recession? The answer is buy more US treasuries.
- What are those concerned about global growth and the situation in Europe (including capital flight) going to do? The answer is buy more US treasuries.
I fail to see precisely what is so "suspicious" about these non-revelations.
Capital Flight in Spain
Check out the Capital Flight in Spain as posted on FT Alphaville.
Things Can Get Disorderly
FT Alphaville reports ...The result is not very pretty. Since the middle of last year, this has been a one-way show, with capital leaving Spain apace. Capital inflows have been almost non-existent. Indeed, Yiagos Alexopoulos at Credit Suisse reckons outlflows are currently running at an annualised rate of 50 per cent of GDP.
Emphasis added.
The analyst notes that the clear trend of foreign investors yanking money from Spain has been joined by evidence of domestic investors moving assets abroad. If that accelerates from here, things could get disorderly.
Yes, indeed, things can and will get disorderly in my opinion.
and.........
http://markets.ft.com/RESEARCH/Markets/Government-Bond-Spreads
Ten year government bond spreads
Country
|
Latest yield
|
Spread vs bund
|
Spread vs T-bonds
|
|---|---|---|---|
Australia
| 2.92% | +1.63 | +1.40 |
Austria
| 2.09% | +0.81 | +0.57 |
Belgium
| 2.78% | +1.49 | +1.26 |
Canada
| 1.68% | +0.40 | +0.17 |
Denmark
| 1.08% | -0.20 | -0.43 |
Finland
| 1.50% | +0.22 | -0.01 |
France
| 2.31% | +1.03 | +0.80 |
Germany
| 1.28% | -- | -0.23 |
Greece
| 25.40% | +24.12 | +23.89 |
Ireland
| -- | -- | -- |
Italy
| 5.80% | +4.52 | +4.29 |
Japan
| 0.79% | -0.50 | -0.73 |
Netherlands
| 1.71% | +0.43 | +0.20 |
New Zealand
| 3.47% | +2.18 | +1.95 |
Portugal
| 10.83% | +9.54 | +9.31 |
Spain
| 6.59% | +5.31 | +5.08 |
Sweden
| 1.31% | +0.03 | -0.20 |
Switzerland
| 0.53% | -0.75 | -0.98 |
UK
| 1.57% | +0.28 | +0.05 |
US
| 1.52% | +0.23 | -- |
and......
http://www.zerohedge.com/news/swiss-bank-crackdown-accelerates-credit-suisse-ubs-clients-raided-germany-france
Swiss Bank Crackdown Accelerates As Credit Suisse, UBS Clients Raided In Germany, France
While virtually every European risk indicator is now being gamed to underreport the true nature of the capital flow panic on the continent, one remains steadfast: Swiss nominal yields, which as we pointed out a month ago, have become the only true indicator of liquidity stress. And as noted this morning, Swiss 2 Year bond just hit arecord nominal -0.37% (which coupled with record low yields in German yields explains everything about where money is sprinting to in Europe, and just how much "confidence" in the system is left). And while the SNB continues to suffer massive losses on its EURCHF peg, the reality is that it continues to offer a free put to all those who wish to move away from EUR exposure and into the relative safety of the CHF (the risk of cantonal disintegration is still relatively low). Which is why the only recourse authorities have in dealing with the now record flight to Swiss safety is brute force. Sure enough, as Reuters reports, clients of the two largest Swiss banks: Credit Suisse and UBS was raided in two independent, but likely linked, operations in Germany and France, respectively, in a show of force that moves beyond mere tax-evasion and has a goal of scaring anyone who still thinks of keeping their money in the relative safety of Geneva and Zurich bank vaults.
From Reuters:
German tax authorities have raided Credit Suisse clients and French officials searched the homes of UBS employees, deepening the crackdown on foreigners hiding money in Swiss offshore accounts to dodge taxes.Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments as they try to crack down on tax evasion by wealthy citizens.Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a bank source said on Wednesday, as European tax officials broaden their investigation to include clients as well as banks.
Meanwhile, the offices of UBS in Lyon, Bordeaux and Strasbourg were raided on Tuesday on suspicion of money-laundering and aiding tax evasion, according to a bank source.The private homes of several high-ranking UBS employees in Strasbourg were also searched, the source said.
And while events like these were normal in 2009 and 2010, following recent "tax-deals" between banks and sovereigns they were supposed to be a thing of the past. It appears that they are now back in vogue, as Europe reverts to the oldest type of capital controls: intimidation.
Credit Suisse struck a deal with Germany last September, which saw the bank pay 150 million euros ($183.83 million) to German tax authorities in a bid to end an investigation over allegations the bank and its employees helped Germans dodge taxes.
Germany and France, along with Britain, represent the largest markets in Europe for Swiss private banks.The German investigation also comes against the backdrop of a deal struck with Switzerland to levy taxes on German funds stashed in Swiss bank accounts that is due to come into effect next year, a l though German lawmakers still have to approve it.UBS was forced in 2009 to pay a fine and release the names of 4,500 clients to U.S. officials to end a damaging tax probe. U.S. authorities are still investigating Swiss banks including Credit Suisse and Julius Baer over tax offences.Switzerland is trying to get the U.S. investigations dropped in exchange for the payment of fines and the transfer of names of thousands more U.S. bank clients.
Hopefully nobody is surprised by this: as the money runs out, 'events' such as these will become more frequent, until the authorities once again shift to confiscating that other non-money: precious metals. All for tax preservation purposes of course, as the much anticipated wholesale financial tax for everyone which we discussed in September 2011 is finally implemented.
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