Murmurs From the 10-Year Note

Sat, Aug 18, 2012 - 12:43pm

What happened? Just a few weeks ago, we were worried that the treasury market was becoming a "black hole" that would soon suck in all financial assets. Instead, rates have reversed significantly. What does this mean and what does it portend?

First of all, here's where we were back in late July. The 10-year note had just fallen through 1.40% and it had everyone's attention: Here we are, 3-4 weeks later, and were at 1.82%. That is a HUGE move! What the heck happened? I think I have an answer but, first, some background.

Take a look at these two charts. One a is daily 10-year and one is a weekly. Note that the current price of the 10-year is 132.50. This is important because the area around 132 appears to be very important support. You can plainly see horizontal support on the daily chart but, looking at the weekly chart, 132 is also near the trendline from the lows of late spring 2011. Breaking that support and that trend would set a top and would foreshadow a move to 127-128. Now, look at the weekly chart. Notice that 10-year prices have been in a very long term up channel. Then notice that the past three Fed "programs" have been initiated when prices were near the top of the channel.

So, what is going on? Why the sudden dropoff in price? I think I have the answer. I posted this presentation yesterday. You may have already watched it. Watch it again and stop it right at the end, near the 57 second mark.

Fed vs. Private Sector Treasury Holdings

OK, just a couple more things and then I'm taking the rest of the weekend off. First, yesterday's CoT was very interesting, particularly in silver. Before jumping to conclusions, I'm going to wait to see what Uncle Ted thinks of the disaggregated report. In the meantime, here's a C&P of my comments from yesterday afternoon:

Submitted by Turd Ferguson on August 17, 2012 - 2:59pm.
I had expected gold to be a non-event and it was. For the reporting week, price fell $10 and OI only fell by 67 contracts. The only item of minor note was the 2,478 net drop in The Gold Cartel net short position which brings their net short ratio back under 2 at 1.98:1. Again, this is historically low and very bullish.
The action and the intrigue is in silver. For the reporting week, silver fell 32c but total OI rose by 4700. Obviously, there was a lot of new buying and selling going on. The question was/is: Just whom was on each side? looks like we have a civil war starting in silver.
For the week, The Silver Cartel total long position grew by 3,202 contracts. This is likely the silver "raptors", as Uncle Ted likes to call them. However, The Silver Cartel total short position also grew by 4,752 contracts. This is likely JPM but I'll wait to see who Ted fingers in his report tomorrow.
I've never seen a Silver Cartel long position this high before. Never. Maybe it has been but I sure as heck don't remember when. For perspective, on 2/28/12 it was 33,802 and on 4/20/11 it was 34,043. Nearly identical levels before sharp beatdowns. On 12/27/11, just before a 2-month, 20% UP move, the total long position was 41,224. Now it's 47, 797!
Similarly, the total short position is unusually large. The last time it was this high was on 3/6/12, just after the peak and subsequent beatdown of late February. In the recent past, it has been as high as 89,827 on 4/6/11 and as low as 55,356 back on 12/27/11.
At first glance, we appear to have the makings of a civil war. Instead of acting collusively, the smaller banks seem to be buying and thus attacking the short position of JPM. To contain price, JPM is being forced to issue new paper independently. Again, this is how it appears. Let's wait until Uncle Ted dissects the report before jumping to any more conclusions.
Perhaps the smaller sharks smell blood in the water. Maybe they sense the opportunity to trap JPM on the short side and squeeze the daylights out of them. Could these banks be expecting an historic, hot and explosive move in the weeks ahead???

And then there's this. While researching this post, I came across this video from March 19th. I don't know who this Ilcyzsyzn guy is but, right now, he looks like Nostra-freaking-damus! Hopefully, he's made himself enough money over the past six months that he can buy himself a couple of vowels.

I hope everyone has a great weekend. Relax and prepare mentally for everything that is soon to come.


About the Author

turd [at] tfmetalsreport [dot] com ()


Aug 18, 2012 - 3:27pm

I remember saying something around that time frame too

Like hold on, just hold on.

Bottoms are never obvious. And even if you're past a big bottom, it's not obvious until weeks have passed or maybe even months. Everything is crappy, it's not doing anything, always looking like it might break down again.

I do remember that $700 gold call that SGS posted on his site though. And if you have to call a bottom, probably whenever that call was made on Yahoo, that was the bottom of this bear interlude. That's pessimism that's way beyond what the price level is telling you.

I think we're setting up for a nice September, which would be in line with the typical yearly gold cycle. A dull summer, with everyone ramping up in the autumn for their weddings and xmas.

Meanwhile BTC gave up some handles - from the $14 handle it's back down to the $12 handle. But like with gold, I think anything that's not-dollars will do well. Doesn't really matter what it is, as long as it's tradable and will hold its value.

I do sorta expect the gubmint to try to screw us. I mean, they're not playing fair now, what makes you think they're going to all of a sudden start playing fair in the future? For us, things are going to get very tricky and complicated. But I'd rather deal with these kinds of problems than have to deal with not being able to afford anything at all.

Aug 18, 2012 - 3:31pm

Financing tfmetalsreport

I've had more time to consider Turd's disclosure of his financial situation and his underlying desire to freely provide the tfmetalsreport website. Basically I take that to mean that he wishes his commentary to be freely available.

So I suggest that while his daily report should remain free, all of the user content be available on a subscription basis (say $5-$10 monthly). Since regulars form a community and benefit from the input, views, discussion and links provided by the community this seems to be fair. In this way we, as a community, will support the website both financially and in providing content.

Dr. Sandiexiledbear
Aug 18, 2012 - 3:51pm


Hey Bear, I disagree. If you say bottoms are never obvious, you've never seen J Lo leave the stage.

But seriously, my long term fear isn't that I won't be able to afford anything at all. My concern is that there won't be anything at all to afford.

Aug 18, 2012 - 3:55pm


With all due respect, do you really think people with common sense are going to pay money to read hateful, condescending diatribe from phony, egotistical know-it-alls? Who in their right mind would pay money to read what some gay man, pretending to be a girl just to get attention, living in mom and dad's basement, has to say? This of course is just an example of who you may be talking with in here.

Aug 18, 2012 - 3:57pm

You're right I haven't seen J Lo

And I don't plan on it either. There's only so many trivial things you can do in a given day. I'd rather waste my time in other ways.

Aug 18, 2012 - 4:09pm
Aug 18, 2012 - 4:11pm

J Lo

I could waste some time on her #$%%^&&&.

Aug 18, 2012 - 4:16pm


With all due respect, do you really think people with common sense are going to pay money to...

I'm having a hard time seeing how this kind of comment is contributing to things, either. If you have an issue with something someone says you might want to try refuting it if you can, but just calling names is only doing more of what you accuse others of doing.
Aug 18, 2012 - 4:23pm

UST's from 1871- 8/17/12 CBO Revenues & Outlay%GDP

Current Rate: 1.81% -2.00 bps At market close Fri Aug 17, 2012
Mean: 4.54%
Median: 3.85%
Min: 1.43% (Jul 2012)
Max: 15.32% (Sep 1981)

US 10 Year Treasury Yield.

Aug 18, 2012 - 4:33pm


"Hopefully, he's made himself enough money over the past six months that he can buy himself a couple of vowels."

Too funny. I'll be chuckling about that for the rest of the day.

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