Monday, July 23, 2012

Pop goes the Treasury bubble

After the bursting of the housing bubble in 2007 and 2008, the Fed began to pump trillions of dollars into the markets to keep the economy out of a depression.  That money went somewhere, and for the most part, it has gone to prop up the insolvent government through the selling of Treasuries.

After 4 years, that glut of treasury buying has reached maximum velocity as yields on these bonds have fallen to their lowest levels in history.

While it seemed somewhat inevitable given the trend, the dismal reality from Europe has sent investors scurrying for the 'safety' of the US Treasuries overnight. The entire yield curve has fallen to all-time record lows with 10Y trading below 1.40% and 30Y below 2.48%. 7Y - the seeming cusp of Twist - is below 90bps now and 2Y below 20bps. The shortest-dated T-Bills still trade around 4-6bps (as opposed to the deeply negative rates in Switzerland and Germany this morning with FX risk premia expectations, and Twist+, affecting this differential). Not a good sign at all - and definitely not yield curve movements on the basis of renewed QE as we see stock futures plunging to the old new reality (as those pushing dividend yields as the 'obvious move here may note that since Friday's highs, you've lost half a year's dividend as equity capital has depreciated 2%). Perhaps the sub-1% 10Y we noted yesterday is not such a crazy idea after all... - Zerohedge

Debt and deflation.  The deathburger of a market menu.


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