Treasury also auctioned $27B of 91 day securities, results here.
These I believe were the first Treasury auctions conducted since the Fed terminated it's Open Market Operations known as QE2. Looks like the auctions today had good interest.
Did anyone see PIMCO's Bill Gross in the media today? Last week he made a bold prediction that nobody would buy Treasury securities since the Fed terminated the QE2. Maybe he meant tomorrow as the Treasury plans to auction $28B of 4 week bills tomorrow. Let's see what happens tomorrow.
UPDATE: It's now tomorrow and the Treasury has sold over $31B of 4-week bills at 0.000%..... where is Bill Gross?
Who's going to buy Treasuries? lol! This is a great one Matt!
ReplyDeletePIMCO's going to buy them
ReplyDeleteGiven the vast amount of QE generated currency there is sat in vaults its hardly surprising that the auction is over-subscribed.
ReplyDeleteWhat I don't understand is if an 'auction' is over-subscribed shouldn't the price drop until it isn't?
Which suggests that it isn't really an auction at all...
@Neil
ReplyDeleteSo, how does this non-auction auction work?
Abellia,
ReplyDeleteIt's a Dealer Market (mostly).
It's like you cant buy a GM car right from GM, you have to go thru one of their dealers.
GM sells the cars to the Dealers and then the Dealers transact with the general public.
This is starting to change with the Treasury Direct program, where non-govt entities can buy USTs "direct" but it will take some time for this "direct" process to become the norm... if ever... will probably remain a hybrid market for quite some time imo..
Resp,
@Matt,
ReplyDeleteSo, how is this an auction at all, and who sets the price?
A,
ReplyDeleteDont know exactly, but it doesnt look like an "open outcry" type of auction for sure.
Treasury probably works with their network of Primary Dealers to gauge demand and price.... then allocates the bonds from the top price down till all gets sold...
Treasury probably doesnt want to have to deal with "the masses" so it sets up a network of 20 PDs or so and figures that is enough dealers to get some sort of "competition" for the bonds....
Resp,
Side question please:
ReplyDeleteA few years ago, I bought some bonds at new auction (not a re-issue). Here is my understanding of the process – is it wrong?
I thought there are competitive bids and non-competitive bids. As an individual my bid was non competitive. I agreed to the number of bonds but nothing else. I am guaranteed a purchase and my yield will depend on the number of competitive bids. Here is how I thought it worked:
For example, say it is a $1 billion auction and there are $20 million non competitive bids and there are more than $1 billion competitive bids. The $20 million non competitive bids are guaranteed placement. That scenario leaves 0.980 billion (or $980 million) for the competitive bidders. The first $980 million lowest yield bids are given bonds and their bids determine the yield the non-competitive bidders get.
Is that not roughly how it works? Again, I bought direct from an auction and within like a few minute after the time for the auction, I had confirmation of my purchase (I could not believe how fast it happened) and my bonds came direct from the Treasury, at least that is how the confirmation was presented (I saw no dealer mentioned.)
Crake,
ReplyDeletedid you use "Treasury Direct" or your bank?
Resp,
Its a dutch auction. The direct sales (which are capped at, IIRC, $1 million per purchaser) are guaranteed placement at the clearing price. Wiki has some details on how FRBNY auctions work.
ReplyDeletehttp://en.wikipedia.org/wiki/Dutch_auction#Public_offerings
T-bonds (>10 yrs) and T-notes (1 yr><10 yrs)are simply risk-free gifts to the banks. There's no reason Tsy should be auctioning anything other than T-bills (<1 yr).
Ha ha, 3 month T-bills today are at 0.01%. Let's see, what's net interest cost these days-- $9 trillion of public debt (ex Tsy and Fed holdings) is paid $270 billion a year in debt service (3.0% avg yield). Let's refi at 0.01% and net interest falls to... $9 billion a year. Funny how no one in Congress looking to cut spending casts their eyes towards the bond market. :o)
ReplyDeleteMatt,
ReplyDeleteI went through my brokerage. I am pretty sure the brokerage went directly through the Treasury because the commission was much less than quoted (when I placed the order before auction, I was quoted like a $120 commission and after confirmation, the commission was only like $20 – and the difference was not mark-up because the confirmation #s matched what was on the Treasury web site for history of that auction) and as I recall, the brokerage representative, who was taking my order, stated that my order was sent to the Treasury and when I was first inquiring, he told me that the cut-off deadline was a half day or full day before the Treasury’s deadline (as I recall, the broker said technically, I had until noon one day of the deadline but in practice it needed to be placed the day before in order to guaranteed they could get in to the Treasury by the auction’s deadline.)
"Funny how no one in Congress looking to cut spending...."
ReplyDeleteThose in Congress looking to "cut spending" are looking to cut "your" spending but not "mine." Nothing new to see here. everyone one knows that "pork barrel spending" is all spending but mine.
It's disingenuous BS, using the budget and debt ceiling to impose a partisan political agenda under the guise of "fiscal responsibility." And the president is either in on it or falling for it. I don't think he is stupid, so I have to conclude that he is in on it.
Tom,
ReplyDeleteI think there is a third and fourth scenario: 3rd) Can’t find an effective way politically to market that position. 4th) Or really thinks government spending and deficits must be financed and thinks we must reduce the deficit (MMT understanding statistically does not exist in either policy making circles nor mainstream economics circles, so this is highly probable) and wants to compromise with Republicans to do it (his nature is one of compromise so this is probable.)
Therefore, Occam's razor, it is the fourth.
Matt,
ReplyDeleteOn my long-winded answer, my point was: If my brokerage told me it would guaranteed placement if I placed the order one day before the auction deadline, I would think the order was sent directly to the Treasury because if my brokerage was selling to me out of its inventory, after the auction, or another dealer’s inventory, it could not make that guaranteed because its competitive bid would not be guaranteed.
Beo,
ReplyDeleteTom has pointed out that the 14th amendment issue has been getting some traction... if you were willing, could you compile some of your posts on this issue into one and email it to me (text file)
matt_franko@mac.com
And I will post it up here at Mike's with attribution. B Beckel reads Mike's blog and consults for Biden and it may help them make a case for the 14th amendment position if it was written up in a brief concise manner for reference.... I think you already have it perhaps just spread across a few blogs....
Resp,
Matt,
ReplyDeleteIn addtion to teh 14th amendment angle, do you think it would be wise to include stuff about coinage and Seigniorage as miscellaneous revenue and the Treasury Secretary having authorization to do it in any denomination would be opening up too many cans of worms or would it be a constructive idea to pass to Biden’s person?
Let's advert on a page in the best newspapers and call all this bluff with an MMT explanation and "expose'"
ReplyDeleteGoog,
ReplyDeleteHow much does that cost?
Crake,
If it were up to me I'd do the coin thing tomorrow.... but for our pols, it may be better to take it in 2 steps... first the 14th Amendment to expose the issue of the debt ceiling as unconstitutional, then when folks calm down about the debt... hit em with the coin deposit....
Resp,
Maybe Bill Gross' point is that he considers those who keep buying Treasuries as nobodys?
ReplyDeleteThe FED would rather PIMCO use their funds to spend/invest in the private sector to create additional demand so they set rates low and Gross got the memo: DON'T FIGHT THE FED. When the Fed wants Gross to buy treasuries they will raise rates and reduce bank reserves and Gross will find value again. He is acting perfectly rational for his pawnlike position in the bond market.
ReplyDeleteTB,
ReplyDeletePawn is right. With a permanent ZIRP, who needs PIMCO? Check out the 4-week results I linked to in the UPDATE; they went off at 100.00 at 0.000%, this may be the first time that the govt sector priced its 4-week issues actually at 0.000%... I'll try to check but this could be historic: US govt issued zero percent 4-week securities...
Mammoth,
He is "whistling past the graveyard": To attempt to stay cheerful in a dire situation; to proceed with a task, ignoring an upcoming hazard, hoping for a good outcome.
Resp,
Here's a link to the last 4-week auction results:
ReplyDeletelink_http://www.treasurydirect.gov/instit/annceresult/press/preanre/2011/R_20110628_2.pdf
Went at 0.005%, so yes looks like history was made today: 0.000% at 100.00, 4-week securities, never before in history....
Did anyone see if Rick Santelli covered this aspect of today's auction in his CNBS reporting today?
Resp,
"Went at 0.005%, so yes looks like history was made today: 0.000% at 100.00, 4-week securities, never before in history...."
ReplyDeleteSure sign that hyperinflation is just around the corner. Just ask over at Zero Hedge. :)
Sorry but who but the Fed would be buying treasuries at 0%?
ReplyDeleteMammoth,
ReplyDeleteThe SOMA only took less than $4B out of the $31B.
So somebody other than the Fed took about $27B at no more than 0.000% (to 3 zeroes at least as JKH points out).
The Fed has stopped the QE2 as of the end of June.... only purchasing to maintain current size of their Balance Sheet as they face redemptions...
Resp,
Seriously, I don't understand who would bother bidding for bonds at 0.000%.
ReplyDeleteDon't you have to pay some fees and waste time placing an order for nothing in return?
Mammoth,
ReplyDeleteI think the only other place they can put the balances is in a US bank account.
I'm not entirely sure but FDIC insurance only goes to 250k for individuals and perhaps a bit more than that for corporate or foreign entities...
so if you have Billions of USD balances you may not be comfortable with your balances sitting in a bank account that the bank could go bust.
If we have a banking crisis right now there would be no debt ceiling available for a fiscal bailout so entities with a lot of USD balances are pretty exposed if they dont go into Treasuries and get the direct US govt guaranty on their balances.
You get a very small govt guaranty with a bank account but you get a full guaranty with the Treasuries... even if they pay 0% they are "money good"...
Resp,
Right, Matt. This is what a subsidized risk-free parking place means. Usually, you get paid to paid there. But even when you don't get paid, or even it costs you, it's still worth it. Here's the proof that tsy interest is a subsidy.
ReplyDeleteYou think Treasuries are safer than bank deposits when default in on the table because of the debt ceiling?
ReplyDeleteCould be but I'm not convinced at all. If bank solvency was a problem you can always withdraw your deposit.
It looks fishy to me, more like someone is doing the Fed a favour?
"You think Treasuries are safer than bank deposits when default in on the table because of the debt ceiling?"
ReplyDeleteAbsolutely. Have you been following banking lately? The big banks — the ones that handle this kind of thing — are insolvent and the government is allowing them to play "extend and pretend" instead of putting them into resolution as the law requires. Read Bill Black's voluminous documentation on this. This is no secret to the folks with bags of money.
These people know that the US government cannot actually default, i.e., repudiate the debt out of financial necessity, but could only postpone paying it due to a political decision. They don't think that the politicians would be stupid enough to do this, and if they are, you can bet that they will be punished by big donors, and the leadership knows it. That S&P threat of a downgrade from AAA to D due to unwillingness to pay was a shot across the bow of Congress.
Brad Delong is worthless. Does he ever post MMT views? I tried to post hours ago and still nothing.
ReplyDeletefor his post today:
http://delong.typepad.com/sdj/2011/07/claims-that-america-needs-not-more-stimulus-but-fiscal-and-monetary-retrenchment.html
i wrote:
"Does Laura even know how monetary and fiscal policy work together? Government debt of a currency issuer is the currency user’s savings as a matter of double entry accounting. It’s just a digital account corresponding to all currency users’ savings in banknotes, deposits, and treasuries. For those of you interested I’ve outlined a laymen’s explanation here - DollarMonopoly.com"
dollar,
ReplyDeleteI dropped a comment there he seems to be moderating it may take a while....
Resp,
i just followed up to your comment but i may have bombarded him with to many comments on to many different posts.
ReplyDeletei'm gonna skip messing around with the smaller non-mmt sites and just try to get comment placement on the larger sites. brad delong....whatever hes a punk.
granted that dude writes alot i have no idea how he cranks out so much stuff.
alot of these big sites must have some commenting controls because i was one of the first to comment on Krugman's post this morning and its still not there. brief, clear, non-political comments. i just start commenting on sites today to drive traffic to my site it worked great for awhile and then just died off. must of been my frequency which though an alarm. i'm gessing people are limited to maybe 2-3 comments a day.
ReplyDelete