BondTraderForum.com

The forums have obviously been dead for a while. Wanted to send a message out attempting to re-initiate conversation.

So any thoughts on treasuries here? Latest 30 yr reopening obviously went very well, despite being a relatively paltry 13B. Any long term outlooks for fellow managers and traders out there?

I'm of the school of thought that gigantic issuance will not likely be met by demand without moving rates up a few notches. Anyone have data on estimates of expected demand levels at various rate levels?

completely understand train of thought about higher rates needed to stump up some demand but ... and there's always a big ole butt, right ... lookin out the various windows and noting Greece after Dubai shock and knowing/thinking/fearing there's more where that came from - PIIGs - sort of limits how bearish we might be. japan working on next lost decade and we're in our very own - much like watching a slow-moving car accident from INSIDE the car. throw into the mix that big election last night - USD bid (thought it would be good for ALL USD assets ... stocks AND bonds ... but it seems stocks are buying rumor and selling fact) as fiscal restraint may be coming? SO increased supply story leading to HIGHER rates (think Morgan Stanely) might have a few holes in it. and as an aside, knowing that MS earnings MISS earlier today has NOTHING to do with your question - should increased volatility help MS make trading revenue? perhaps they are sticking to their own views to a fault and trading for 5.50% 10yr Tsies a bit too much? donno, and again, sorry for digression. in as far as what rates equate to demand? recent CoTr data indicate large short base - 4yr high - which makes great deal of sense - 10s went from 3.20 up to 3.90 in just over a month. that right there ought to do and we've been in a mini 'rally mode' for a couple days now. think this can continue with more bullish flattening bias over next week or so. 10s to 3.50%? how about you?? sorry to unload on so many different topics but am new to all of this up here. curious to see where this might lead. Best, Steve

Michael, I agree with your basic idea, but what is the range you are thinking? The auction today was awful, and there wasn't too much of a response. Where do you think the long bond goes to attract real demand? Also what did you think of the 25% direct bidder today?

jakedeez wrote:Michael, I agree with your basic idea, but what is the range you are thinking? The auction today was awful, and there wasn't too much of a response. Where do you think the long bond goes to attract real demand? Also what did you think of the 25% direct bidder today?

I'm not really sure of the yield range. There's a lot of short term money out there that wants to roll over, so that will soak up a bit of the treasury supply. The treasury better be nimble in managing its longer duration supply, though. As far as the 25% direct bid, look at the 2009 first auction result:

http://www.treasurydirect.gov/instit/an ... 0212_1.pdf

Maybe there is a seasonal effect here ? Not sure. More $$$ are tendered in total on these auctions versus last year, so that doesn't exactly bode negatively for treasury demand.

Any thoughts on today's big move in treasuries? Looks like something to do with 30 year swaps and the Yen unwind.
Martinghoul? Not convinced it has anything to do with treasury supply / auction performance *yet*.

I am here...

It's a lot of stops. A whole bunch of people thought that what happened in 30y could never happen in 10y. The mkt disagreed.

Hello all... trying to educate myself on bonds, thus my presence here.

"higher rates needed to stump up some demand"

Obviously, higher rates weren't needed as the Fed is buying treasuries pressuring rates down and creating an apparent demand. Are bonds sucking the air out of stocks? And is this a dangerous situation? While lower rates can help with refi of massive coporate and mortgage debt, savers and those playing other instruments are seeing gains flying out the window. It looks this administration tries to fix somthing while messing up the other end of the balloon. Today, on NPR Dennis Gartman said bonds were rallying because of baby-boomers trying to secure their savings for retirement... as if they weren't a risky asset.

I am having a hard time accepting the premise that bonds are rallying because of retail investors. Or is this a mid-term election "limited-edition" bond rally?

BoyP wrote:Hello all... trying to educate myself on bonds, thus my presence here.

"higher rates needed to stump up some demand"

Obviously, higher rates weren't needed as the Fed is buying treasuries pressuring rates down and creating an apparent demand. Are bonds sucking the air out of stocks? And is this a dangerous situation? While lower rates can help with refi of massive coporate and mortgage debt, savers and those playing other instruments are seeing gains flying out the window. It looks this administration tries to fix somthing while messing up the other end of the balloon. Today, on NPR Dennis Gartman said bonds were rallying because of baby-boomers trying to secure their savings for retirement... as if they weren't a risky asset.

I am having a hard time accepting the premise that bonds are rallying because of retail investors. Or is this a mid-term election "limited-edition" bond rally?

I think the (lack of) economic recovery is supporting bonds. With hiring so slow to kick-start, the Fed is expected to be on hold much longer than previously thought. With either Krugman's analysis a la CBO data(http://krugman.blogs.nytimes.com/2010/0 ... le-wonkish), or this analysis I recently did (http://scriabinop23.blogspot.com/2010/0 ... tions.html), the conclusion is the same, that expectation of deflation, poor employment prospects, and thus no earnings growth is keeping stock multiples depressed while fueling demand for bonds.

Peoples' 401Ks, pensions, retail accounts, etc. are all fueling new marginal bond demand.

Looking at current CPI data and imposing the trend from the most recent few months says we'll move from disinflation to outright deflation in 6 months time. So it makes sense.

The biggest lesson I've learned from watching this is that long run expectation seems to have driven pricing in these bond markets much more than short run policy action. The beginning of QE 1, with 300B of treasury buys and 1.25T of MBS buys, was the top of the treasury market. Now the latest Fed announcement to maintain balance sheet size by converting MBS holdings (that roll off) to treasuries has seen the 20 year up about 5% since. The difference between now and then was that uncertainty was much higher back then, particularly about the possible effect of bringing the monetary base up to $2T. Now, as we've seen, those excess reserves are proven (at least in the short run) not to be an inflationary threat.

I think the gold + treasuries barbell allocation, which makes perfect sense in theory (long duration treasury overweight to give excess real return in a deflationary environment + a gold "inflation" hedge), is the greatest beneficiary of all of this. In the event we see an actual job recovery (even with inflation as potential threat), I wouldn't be surprised to see both unwind.

Thanks.

If we see deflation in 6 months it will be a "run for cover" scenario. However, both staffing and worked hours have been improving for months and are getting close to the point in which employers won't be able to squeeze another single task out of workers without facing a revolt... so hiring may be close at hand. Although the staffing gains could also be seen on a darker note, as if employers are replacing their workforce with temps to save money and become more flexible in times when uncertainty is the norm.

On another front, gold and bonds do look like being set up for a sell off down the road. And as you said, this might only happen if the job picture improves noticeably. According to your article, stocks could be toast for longer than what I was thinking.

Oh, there is a gentleman commenting over there that thinks this is all a conspiracy by banks and hedge funds to take over properties and rent them out. This would be sad, if it weren't funny.