Sell-Off in U.S. Treasury-Land

The Treasury market has an ugly pallor about it to begin the week. The salient question is to determine the cause of the sell-off and breakdown in US Treasury-land.

I like to keep things simple. The market is cratering because the US Treasury is engaging in a week-long act of projectile vomiting via its issuance of $123 billion of new securities.

Traders are busy offering the market down as that is the path of least resistance. They will operate in that fashion until that posture costs them a few shekels. So unless buyers show up traders will lean on the offered side.

I have heard of central bank buyers in the 2 year and 3 year sector. There is fear of paying in swaps by servicers and MBS portfolios as they hedge extension risk.

A long bond trader noted that each of the benchmark issues had broken through key support levels (100 day moving averages) and that has engendered some additional selling.

The yield curve is significantly steeper than it was at the open. The 2 year/10 year spread is 252 basis points after beginning the day at 248. The 10 year/30 year spread is 82 basis points after opening at 80 basis points.

I do not generally follow here the 2 year/30 year spread. However, it has moved from 328 basis points at the open to 334 at this moment. Investors are scurrying away from the long end.

Comments

[cyclingscholar:]

Do not intend to be a 'meanie' or a doomsdayer, but to be honest it would be WONDERFUL to see the stock and bond markets BOTH tank for a while, to puncture the idea that TBonds are some kind of 'safe haven' from risk. Exactly how 30 yr. bonds at these levels with the FED monetizing the debt constitutes LOW RISK, escapes me.

Oct 26 12:02 PM

[twotraps:]

Gott agree with cyclingscholar, it does not make sense to me but the bond return as been awesome so far this year. Will there be a lot of 'trapped money' in long end govt paper if prices come off here? I could really use a good talking to here because surely I am missing something!! Can the govt just keep issuing a shmillion zillion dollars in debt and expect to keep going to the well?

Oct 26 01:32 PM

[Socialism c...:]

The move to hard goods and commodities begins in earnest soon...and will coincide with a *real* drop in stocks and treasuries, as cyclingscholar suggests. The propped-up economy illusion is about to end, and people will want things of use and value in their hands, not pieces of paper of any kind.

Oct 26 01:42 PM

[Jason Rines...:]

Yes, but I expect one more big sucker rally on treasuries after the 2010 mid-term elections. As to your point about paper, I remember my Grandmother's advice whom lived during the Great Depression:
"Contracts are only worth the paper they are written on". It was almost 40 years since the 1929 crash before she bought stock again and it was in oil.


On Oct 26 01:42 PM Socialism cannot compete! wrote:

> The move to hard goods and commodities begins in earnest soon...and
> will coincide with a *real* drop in stocks and treasuries, as cyclingscholar
> suggests. The propped-up economy illusion is about to end, and people
> will want things of use and value in their hands, not pieces of paper
> of any kind.

Oct 26 02:04 PM

[MarkitWacha:]

Long: DBC

The government can't lie about commodity prices.

Oct 27 09:07 AM

[youngman442002:]

"The government can't lie about commodity prices".....
no but they can windfall tax it...or regulate it..or even take it over in the National Interest....

Oct 27 10:00 AM