Kyle Bass discusses US bonds and the " No Way Out " scenario if US Treasuries default ! World Bank whistleblower Karen Hudes gives startling interview - states dollar worthless and will soon crash !

http://www.zerohedge.com/news/2013-10-09/general-collateral-turmoil-bill-battering-finally-slams-repo

General Collateral Friendo'd As Bill Battering Finally Slams Repo

Submitted by Tyler Durden on 10/09/2013 09:48 -0400

• Debt Ceiling
 
• Friendo
 
• Repo Market

inShare4

As we first pointed out, yesterday's stunning, near-failure in the 4-Week Bill auction, was the straw that broke the illusion of the market stability's back and as even Goldman pointed out, led to the first true "fear-driven" drop in stocks. Today, things are getting from bad to worse, as it is not the Halloween Bill, but the October 17 issue that is getting Friendo'ed as can be seen on the chart below - the 10/17s just hit 42 bps, a nearly 20 bps move in minutes!

But while disturbing, what is going on in cash is just the beginning of the story. It is the events shadow funding markets that could really light the fuse on fire.

Recall that in our post from Monday "With A Looming Debt Ceiling X-Date And Still No Deal, Here Is Another Trade Idea", we said:

Repo investors [will] begin to focus on the underlying collateral and start to make a distinction between debt that is most subject to payment delay and paper that is not. The result would be that as cash leaves the funding market, "the financing rate on all Treasury collateral – regardless of its maturity cycle – will rise." Indeed, during the last debt crisis in the summer of 2011, Overnight repo soared from 1 bps to 28 bps in the span of a few weeks. It is this trade that may once again generate substantial alpha for those who wish to bet on continued Congressional dysfunction because the October US Treasury repo future is currently trading at an implied yield of just over 11bp, having cheapened by more than 3bp since September 23. "Depending on how quickly the debt ceiling is raised, we expect this implied yield could move higher ahead of October 17"

In other words, in addition to another very profitable pre-debt ceiling trade (repo yields are spiking) alongside our other prior recommendation that has generated epic alpha in ten short days, it was only a matter of time before the surge in cash yields moved to the repo market. That time is today.

According to some, the main reason for the crush in 10/17 Bills is that this is the first issue to no longer be accepted as collateral by repo desks. Which means the cash contagion has finally spread to Repo. Sure enough, Stone McCarthy confirmed just that:

The Fed funds rate again opened at 0.10% this morning. Prior to today, it had traded at 0.09% early every morning since September 9th except for last Monday ahead of quarter-end. Yesterday's Fed funds effective rate was 0.08%. It was 0.06% last Monday for quarter-end, but outside of that it has held between 0.07% and 0.09% since June 18th. The overnight GC rate jumped this morning to 0.15%, which is above even where it was for quarter-end. It is the highest the early morning GC rate has been since June 28th.

And of course, unless this waterfall contagion is stopped, next up come money-markets, broader repo markets, and ultimately a Lehman-like Ice-9 freeze as contagion grasps the entire shadow funding market at precisely the worst time possible. Will this happen: we don't know. We do know, that with every day that the debt ceiling remains unresolved, the possibility of such an Ice-9 outcome becomes exponentially greater.

http://www.zerohedge.com/news/2013-10-09/us-treasuries-are-riskier-italian-and-spanish-bonds

US Treasuries Are "Riskier" Than Italian And Spanish Bonds

Submitted by Tyler Durden on 10/09/2013 09:21 -0400

• Bond
 
• Italy
 
• Volatility

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In the equity asset management world, the word risk is ubiquitously interchangeable with the word "volatility" for myriad asset allocation models that promise mathematical precision way beyond the realms of possibility in a dynamic world. However, extending that definition of risk, we thought it worth pointing out that, for the last month, US Treasury bonds have become more volatile (more risky) than Italian and Spanish bonds.Something to ponder for The Fed's new head we suspect...

The 3 month volatility of US Treasuries is now higher than that of Spain and Italy (both of which offer significantly higher yields than the US)...

One can only imagine the automated overweighting that a lower risk, higher return implies for the peripheral European bond markets... but for all those MPT asset allocators out there, when all you have is hammer...

http://sweetness-light.com/archive/debt-crisis-threatens-puerto-rico-wants-bailout?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+sweetness-light%2FsURR+(Sweetness+%26+Light+-+Articles)

Debt Crisis Threatens Puerto Rico (Wants Bailout)

From a suddenly concerned about debt New York Times:

Worsening Debt Crisis Threatens Puerto Rico

By MARY WILLIAMS WALSH | October 7, 2013

While Detroit has preoccupied Americans with its record-breaking municipal bankruptcy, another public finance crisis on a potentially greater scale has been developing off most Americans’ radar screens, in Puerto Rico.

Puerto Rico has been effectively shut out of the bond market and is now financing its operations with bank credit and other short-term measures that are unsustainable in the long run. The biggest concern is that the territory, which has bonds that are widely held by mutual funds, will need some sort of federal lifeline, an action for which there is no precedent…

"Some sort of federal lifeline" means a bailout, courtesy of the US taxpayer. (Cf. Detroit, which just got $300 million as their first bailout down payment.) But why doesn’t Puerto Rico just raise their credit limit and borrow more money? Are they stupid or something?

Puerto Rico, with 3.7 million residents, has about $87 billion of debt, counting pensions, or $23,000 for every man woman and child. That compares with about $18 billion of debt for Detroit, with a little more than 700,000 people, or about $25,000 for every person in the city. Detroit and Puerto Rico have been rapidly losing population, leaving a smaller, and poorer, group behind to shoulder the burden.

So it is the same situation the US faces writ small.

Detroit, at least, was able to seek relief in bankruptcy court, but Puerto Rico is in a legal twilight zone. Territories, like states, have no ability to declare bankruptcy. Another territory, the Northern Mariana Islands, tried in 2012, but its case was rejected…

Are there a lot of voters in the Northern Mariana Islands?

One idea being considered is that Congress might establish a financial control board, perhaps like the one that helped guide the District of Columbia through a turbulent period from 1995 to 2001. One of that board’s first steps was to appoint a financial official with power to override the mayor and City Council.

But with the federal government shut down, Mr. Donahue said, “there’s really no path.” …

http://www.zerohedge.com/news/2013-10-09/kyle-bass-warns-there-no-way-protect-yourself-if-us-treasuries-default

Kyle Bass Warns "There Is No Way To Protect Yourself If US Treasuries Default"

Submitted by Tyler Durden on 10/09/2013 19:54 -0400

• default
 
• JCPenney
 
• Kyle Bass
 
• Kyle Bass
 
• Muni Bonds
• Puerto Rico

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"If the politicians lead us into a 'prioritization of payments' situation for Treasury Secretary Lew or an actual missed payment, there is nothing you can do to protect yourself from that!" are the ominous words that Kyle Bass uses to describe the farce that is rapidly approaching (and for now being ignored by stocks). Bass went on to pull no punches in his "disappointment" in JCPenney's performance (and dilution) coming as close as he can to saying "sell." But his piece de resistance was a dismal destruction of any silver lining for Puerto Rico and the significant implications that will have on Muni bonds in general.

On Default risk and "Un-hedgeable" implications:

http://beforeitsnews.com/economics-and-politics/2013/10/dollar-valueless-about-to-crash-world-bank-whistleblower-2457184.html

Has the US Dollar now lost all value and is soon to crash as stated in this Russia Today video interview with World Bank whistleblower Karen Hudes? Is the US government shutdown a ‘temporary ailment’ or a ‘symptom of a grave, and terminal, disease’?