Skip to comments.Horrible 5 Year Auction Sends Treasury Complex Into A Tailspin, 5 Year Yield Surges
Posted on 06/28/2011 10:53:13 AM PDT by Nachum
It has been a long time since we had seen a 5 Year auction as ugly as today's: printing at a 1.615% high yield, the 5 Year had a 3.5 bps tail off the bat to the 1.58% WI where it was trading before. The internals were just as ugly, with the Bid To Cover coming at 2.59 a plunge from May's 3.20, and the lowest since June 2010. Not surprisingly, Indirect interest evaporated once again, tumbling from 47.1% to just 37.6%, with Primary Dealers having to take up more than half, or 52.1%, and the remainder going to Direct Bidders. Too bad they will have no more opportunities to flip these back to the Fed. Which as expected starts to confirm Bill Gross' thesis that in the absence of the Fed monetizing, rates are about to go higher. One look at the second chart shows the relentless selling in bonds since Sunday. And as reported previously, with a barrage of issuance due in the months following the debt ceiling hike, which will probably be some time in July or August, look for the sell UST thesis to start getting its long overdue confirmation. In the meantime, the 5 Year yield has surged from 1.35% yesterday to 1.5727%, a mindnumbing move.
(Excerpt) Read more at zerohedge.com ...
Should anyone be able to translate into English this goobledegook please do so.
The American taxpayer is in for a shock like we have not seen in many, many decades. Interest on the CURRENT debt could easily pass $1tril/yr.
Does ANYONE actually believe we'll pay that? Anyone?
Sovereign Default is the only outcome here.
Here's what I got from it....
Panic. Interest rates went from Super super incredibly low to just really Super incredibly low. Therefore panic, the sky must falling! The Federal Reserve is doing too much. Panic. The Federal Reserve is doing too little. Panic. All Hail Bill Gross (who has been wrong many many times) and don't forget to panic.
“The American taxpayer is in for a shock like we have not seen in many, many decades. Interest on the CURRENT debt could easily pass $1tril/yr.”
The most worrisome part of the current deficit is that it is occurring on very low inflation (at least until recently) and interest rates. The very low interest rates have created a stock market bubble as investors have turned to stocks to avoid the abysmal interest rates on cash. The low interest rates have subdued interest payments enabling politicians to increase spending in other areas. The low inflation rate has reduced spending on entitlements masking the potential risk of the entitlement bomb.
We have a public largely believing in free government spending and politicians eagar to appeal to this fantasy. The dollar’s position as the world’s reserve currency, dependency of other countries on exports to the US, and difficulty to replace the US dollar have created this illusion of free government spending. Economic gravity exists. Economic perpetual motion does not exist. The dollar is in for a very hard fall perhaps plunging the entire world into chaos.
But... but... but... should we PANIC???? Or, merely... panic?
Supposing two of us, panic together?
When In Trouble Or In Doubt
Run In Circles Scream And Shout
No need to Super Panic, just Panic.
The only way out of this is to pare the government down to it’s constitutional function and unload the activist and corporate welfare.
It is too out of control and too big to be fixed by snipping at seniors and snipping here and there. Selective political cuts will just harm and protect selected political supporters of each party and will never be accepted by the public.
For example, my employers and I paid a lot of money into my so called “retirement benefits” - social security and Medicare. You are not stealing my money and leaving in place, the Department of reEducation, foreign aid, the UN, Obamacare, welfare, the left’s department of labor and the EPA, and all the other unconstitutional functions of life our government has taken from the people.
No, if we are going to bail out foreigners, re-educators, GM, GE, Google, artists, watermelons, health nazis, banksters and Obama’s unions, you can bail me out too. I won’t be the sucker holding the elite’s internationalist bag of trash left with no power and no constitution.
You pretty much nailed it.
Increasing interest rates will impact ALL aspects of the economy. THIS will be the beginning of significant inflation as these additional financing costs are passed through to the consumer. It’s gonna get ugly...fast.
Well, basically it says we are screwed. We are RELYING on cheap interest rates for the foreseeable future. We spend $200 billion- $500 billion on interest on the debt with interest rates almost at zero. Just imagine if we went to a more normal rate of say 5% or 6%. We would immediately owe $trillions in interest just on the debt. Game over!
The Fed would probably start printing more money to pay the interest and then we have $10 gas, $7 bread, more job losses. Once you get in the death spiral, there is no turning back. Look at the history of Argentina for a picture of what will happen. Generally at 25% prime rate, we are in revolution and money becomes worthless and gold bugs will finally be right.
Bernanke has said he sees low interest for the foreseeable future, because he is buying the debt with printed money. China doesn't want anymore, Saudi's don't want it, Japan has it's own problems, and Russia, well they've waited decades for this.
Keep an eye on the 10 year rates, IMHO, that will tell the tale. If the 10's get much over 4%, we are probably on our way to a slide into the abyss. We absolutely need to CUT SPENDING NOW. The deal that will be made for deficit reduction will be the biggy. If Obama wins and gets tax increases, that means more lay offs, Jobs moved overseas, less revenue, and more problems. If the Repubs hold the line and cut spending, it will be more psychological than substantive. This would reassure the world that we are serious about our mess and we can kick the can down the road for awhile. We may not be able to last until the next election, but this would be the only scenario to make that possible.
I'm not sure the country understands just how dire the economy is. Any morning, we could wake up with a collapse, not a recession. That's a whole new ball of wax that Americans have never experienced even during the Depression. Many experienced Wall Streeter's are pooh poohing the rise in gold, but just survey the "good" news and tell me what would make it go down for very long. It may hesitate and see saw for a few days but generally there is nothing out there to stop the gold train. Bernanke is virtually out of bullets and only has printing easy money left. He will be required to print more and more as the market cries out for higher interest.
To make a long story short, the next few weeks hold the fate of the republic hostage. Cutting debt is job one, even before jobs. Getting job creation would get more payers and less outlay, but we have Keynesian's in charge and they have no clue what to do. Raising taxes would make things worse, so cutting programs is Job 1 until we get a new prez.
(if you have any booze left)
It's as certain as the day is long, worldwide chaos.
WHEN the USA defaults the only thing propping up the US Dollar fiat, the Full Faith and Credit of the USA, will have vanished.
The bulk of worldwide sovereign assets are in US Dollars as are almost all of their foreign exchange funds.
Actually, worldwide chaos may be an understatement.
Worldwide trade would nearly cease. Dozens of governments will fall, to be replaced with entities we can't even imagine at this point. The poor will starve by the 10s of millions and within 10 years could top a billion people.
It's also likely the current US regime which has been in power for over 200 years will fall. Trials and hangings in the streets, perhaps on the Capitol steps.
The wholesale destruction of every fiat currency in the world...over night. All financial assets worthless.
People worldwide will be very, very angry. And the people who got us into this mess will have nowhere to hide.
JUst to add to your translation:
Imagine 1979-1980 --- Now multiply that tenfold.
Larry Lindsey talks about this in a WSJ op ed today.
All the budget projections are based on the fedgov borrowing at very low rates.
If they even rise to historical norms it’s very problematic.
Such a nice soft way of putting it!!!! lol Is everyone ready?
Aw heck, even that probably won't make much of a difference. The Congress will spend, spend spend. Spending is the only platform that gets them elected.
We are all Grecian now.
If not in 2012, certainly by 2016 a political party will adopt a platform plank of "Bring everybody home and Default Now! And they will win big.
It's the only way out.
And the entire world will be very mad at us...because it's possible for the US to survive such an act. For the rest of the world it's iffy at best.
The dollar has as it's position in the world a nearly religious significance. You destroy it and the organizing principles of the current world order and most countries will vanish overnight.
Is this the beginning of our big fat Greek financial default?
Something I haven't seen anyone mention: the 14th Amendment prohibits the Federal government from defaulting. Not that the Constitution means much nowadays.
“The most worrisome part of the current deficit is that it is occurring on very low inflation (at least until recently) and interest rates.”
Very Low Inflation? Where have you been? The real cost of living or business has been going up about 10% a year since 1999.
“Very Low Inflation? Where have you been? The real cost of living or business has been going up about 10% a year since 1999.”
What inflation index do you refer? Even CPI-W which seems to overstate inflation does not have anything near a 10 percent rate.
“What inflation index do you refer?”
I stopped using any government “cost of living” adjustments along time ago. About the time the government started tying ss payment to the Cost of living index.
In 1999 a small cup of coffee cost me $.90. Same shop 2011 cost of a small cup of coffee cost $2.85. The owner doesn’t drive a Mercedes Bends and he works in his shop every day He has five employees and health care as well as other cost related to doing business. So you tell me which is a better gage of “inflation”, The crap coming out of Washington or someone who has to compete in the free market? I’m self employed and my cost have risen in line with the donut shop.