Murmurs From the 10-Year Note

287
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: https://www.tfmetalsreport.com/blog/4046/two-things-my-mind. 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.
MODERATOR
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? Well...whaddayaknow...it 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.

https://finance.yahoo.com/blogs/breakout/wait-gold-bottom-1525-ilczyszyn-202824187.html

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

TF

About the Author

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turd [at] tfmetalsreport [dot] com ()

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¤
Aug 20, 2012 - 10:01am

The market that goes nowhere...

This is like watching paint dry. I've never seen a market like this that's just waiting for something, anything.

It makes all those shills on TV spouting off about how undervalued company X is or how the economy is better of etc. sound like a recording that keeps looping the same message.

The Beatles - Nowhere Man
¤
Aug 20, 2012 - 9:41am

Increased Bank Deposits = Increased UST Purchases

Banks Use $1.77 Trillion to Double Treasury Purchases

By Cordell Eddings and Daniel Kruger - Aug 20, 2012 7:52 AM ET

The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010.

As deposits increased 3.3 percent to $8.88 trillion in the two months ended July 31, business lending rose 0.7 percent to $7.11 trillion, Federal Reserve data show. The record gap of $1.77 trillion has expanded 15 percent since May, the biggest similar-period gain since July, 2010. Banks have already bought$136.4 billion in Treasury and government agency debt this year, more than double the $62.6 billion in all of 2011, pushing their holdings to an all-time high of $1.84 trillion.

Faced with a slowing U.S. economy, unemployment above 8 percent for more than three years and regulations forcing them to hold more and higher-quality assets, banks are lending at below pre-recession levels. The bond purchases help explain why even after rising this month, Treasury 10-year note rates are about half the 3.5 percent median forecast of 43 economists in a Bloomberg survey a year ago.

“Bank deposits continue to explode and in turn they continue to buy Treasuries as the economy loses momentum, inflation is trending down, Europe continues to hang over our heads and political uncertainty reigns” said Michael Mata, amoney manager in Atlanta at ING Investment Management Americas, which oversees about $160 billion. “There is no reason for interest rates to climb in any meaningful way any time soon.”

El Gordo
Aug 20, 2012 - 9:35am

Sled dog syndrome?

That's what I've got. Dumber than a sled dog. Scenery doesn't change much unless you are the lead dog, which I'm not. So while I watch and read and study, I'm still taking a little out of each paycheck and buying something that says .999 on it. How dumb is that?

murphy
Aug 20, 2012 - 9:12am

Max and JS Kim

Video unavailable

edit btw- S Roche and Pining: at about the 20 minute mark he says he would like to tell people to convert 40 to 50% of their fiat to metal but that is to much to ask. So instead he says convert 2% per month. Just as a comparison as to what Rickards said in Australia last week.

Aug 20, 2012 - 9:11am

Regarding Congress and the Fiscal cliff

Tyler says this morning that "nothing will occur; no compromise reached, until the governement is 'forced' by the market to take action - by some asset value plunge that scares then into scramble mode." Click for new window Scramble Mode? What ever happened to "planning?" I fear Tyler is spot on! ​If that is not the worst way for congress and the POTUS to run this nation, for a CEO to run a corporation, for a captain to run a ship, I know not what is! I have no hope of the US getting its financial footing ever again.

Aug 20, 2012 - 8:59am

Thoughts for a slow morning

I sincerely hope Turd’s information about the explosive move comes to pass.

In never noticed Jeff Daniels silver bolo tie and belt buckle—how appropriate! (not for the faint of heart or coffee drinkers with keyboards)

Dumb and Dumber toilet scene (HD)

So I am watching the opening this morning and see silver capped yet another day. My AGQ calls I bought in July are wasting away, the value eroded by the approaching expiration date in late September. Oh well, I know the risks of playing with paper.

So I have decided not to be discouraged. I used to keep a silver eagle on my desk at home to fondle as I worked and watched charts. After the two major beatdowns I had to move up to a 5 oz bar for fondling purposes to keep my spirits up. Since last January, I upped it yet again to a 10 oz bar. But as the summer wears on with silver held in a tight range and pulled out all the stops and have a 100 oz silver paperweight on the desk to heft around. I keep telling myself that I am not discouraged.

So it occurred to me this morning that the EE may love nothing more than to discourage us PM investors (nothing except more profit, that is) with a big disappointment of all this talk of an explosive move. How many of us would throw in the towel on stacking? They have proven they are willing to flaunt the law, collude, conspire, manipulate, and do whatever it takes for their survival. It is entirely possible that the EE will counter this explosive news or event with another dirty, unfair, illegal trick to keep the price of metals on a leash. I fear that if successful in such a nefarious tactic, that many reading this blog who have been catechized, but not yet confirmed as true PM devotees may fall into apostasy, leave our fine pastor Turd and the zealous community here and put their stock back into paper. I hope nobody lets the discouragement push them into something foolish.

Keep stacking, no matter what happens.

Aug 20, 2012 - 8:31am

@LL

I suppose if one were stuck with the idea that some must rule others then your idea is probably better than most, but why not do away with the idea that social issues can only be addressed by force? I happen to have enough faith in people to believe voluntary, consensus based social organization is the only moral approach.

https://voluntaryboundaries.blogsome.com/2011/07/09/an-american-experiment-in-anarcho-capitalism-the-not-so-wild-wild-west/

https://voluntaryboundaries.blogsome.com/2011/01/12/the-obviousness-of-anarchy-by-john-hasnas/

https://voluntaryboundaries.blogsome.com/2011/01/04/the-myth-of-the-rule-of-law/

You may say I'm a dreamer...

Torpedo Fish
Aug 20, 2012 - 7:10am

@LL

File -> Save As -> Web Page Complete

Roark
Aug 20, 2012 - 7:08am

@LL - Weed Blower

Remember the movie Caddyshack? Aa weed blower will rid your home of all that pesky fiat without disturbing the PMs. :)

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