Wednesday, December 28, 2011
Treasury auction 7-times oversubscribed, interest rate, ZERO!
Treasury just auctioned off $30 billion of bills at a rate of ZERO and it was nearly 7 times oversubscribed!!!!!!!!!
Yet they keep telling us that the deficit and debt will cause rates to spike!!
When will they wake up??
S&P, PLEASE DOWNGRADE THE US CREDIT RATING AGAIN SO THAT 10-YEAR YIELDS CAN GO TO 1%! PLEASE!!!!!!!!!!!!
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31 comments:
So ... you're saying I *didn't* need to buy all those extra wheelbarrows to cart my Weimar-money around?
Damn it. I could have bought an iPad!
2012 is going to be a brutal year for all these hyperinflationists. Gold, silver, short dollar, short Treasury and all the rest of their cockamamie strategies are going to implode.
Good-bye Schiff and good riddance!
Mike this 0.000% 4-week rate seems to be becoming commonplace after it was news earlier this year...
who's going to buy them now? LOL!
MMT ought to put together a BD and make an unsolicited proposal to Treasury that we will Deal all they can give us for a fixed fee of $50 per $1M issued.
If they gave you all of today's $30B that would result in a $1.5M fee for shuffling around some risk free paper. Not bad for a days work...
Resp,
Matt,
Good idea!
Functionally why do banks value 0.00 T-Bills more than plain old reserves or vault cash? They are both zero interest claims on the government but the bills require bidding and settlement etc. It seems like a lot of hassle for no return. Unless reserves aren't accepted as collateral or something? I miss the point
Mike,
If rates keep collapsing to zero, I dont know how they are going to continue to get PDs to engage unless they go to a fixed fee model.
Buyers may get pissed if spreads get too wide on 0% securities... seems like a fixed fee model could work in that case...
If I were Treasury I would have to be concerned about this... MMT to the rescue!
Resp,
Mike,
Can you see what todays bid/ask spreads are on the 4-week Treasuries on your Bloomberg?
Rsp,
At this rate,the treasury will have to charge a fee or hold a lottery to purchase our bonds.
A lot of scared money out there!
TomatoBasil,
I had asked the same question. The answer someone gave was that only banks have access to riskless 0.25% reserves, the rest of the private sector may be interested in the next best thing - the 0% T-bills. FWIW
Matt:
Zero to negative five cents.
And T-Bills are the highest form of collateral, that some fiduciaries are REQUIRED to hold.
Mike -- Do you really want the 10-year rate to go to 1%? Isn't the income channel thin enough? I feel sorry for the savers.
here is some data from wsj
http://online.wsj.com/mdc/public/page/2_3020-treasury.html
You can see that effectively, if you buy a security that expires before looks like the end of May, you are looks like effectively getting a negative interest rate (asked yield).
Based on the one bond expiring at end of January, looks like the Dealers get 0.07% spread (100.0469 by 100.1172) if they can get this Bid/Ask. so that is looks like $700 on $1M.
You may be able to crush them with a fixed-fee model here at the zero bound and still make a lot of profits...
Resp,
"Do you really want the 10-year rate to go to 1%? Isn't the income channel thin enough? I feel sorry for the savers."
In so far as many savers are also retirees, Tsy could create an annuity program, say, for the life or lives of a person or couple. The Secretary has authority to set whatever interest rate and conditions on T-bonds that he wishes (limiting them to Social Security recipients, a per person/coupe cap on purchases. etc).
What's more since annuities don't come with Ty obligation to repay face amount of principal, they'd be exempt from the debt ceiling (Perpetual consol bonds-- which could be pegged to CPI-- would be exempt for the same reason).
Beo,
Seems like this cant go on like this forever with people getting negative interest rates for short term Treasuries...
The govt is going to have to redesign the whole thing here as short term bond buyers are effectively paying interest on their bonds due the the dealer spreads.
Fiduciaries are either going to have to go to Treasury Direct or I dont know what.... if the Treasury came out with a new series like you talk about here perhaps that would help.... how can pension funds keep it going when we have negative interest rates out to 6 months now?
This is going to implode...
Could this actually end up causing a Treasury Auction "failure" at a 0.000% rate???
Message is that the real interest rate is in the tank. That is a strong deflationary signal. The Fed should be worried, very worried.
Matt, aren't we in the world of defined contribution (as opposed to benefit)? Pension funds will keep going, just producing less return. it may be that they increase exposure to equities as a result of low bond yields.
I'm more concerned about the credit crunch going on in Europe. I mean, all that dough being parked at the Druggi's doorstep is a sign of a system that is completely broken. The idea that banls would sacrifice their own common sense and credit ratings by buying sovereign detritus was always a joke, but now it's a betterdecision to drop 75bps as a safety precaution? It makes US Bill yields at zero look like a bargain!
apj
Anon,
I think a lot of current recipients are getting pensions via the old fashioned defined benefit plans...
State & Local govts, old line corporate retirees (ATT, GE, GM, Boeing, P&G, etc....) seems like if the govt came out with what Beo proposes above it may save their bacon...
New series of USTs with a positive upward sloping yield curve... for savers...
Resp,
John,
I was being facetious and making the point that all the "Very Smart People" continue to tell us that the U.S. "mountain of debt" will cause interst rates to spike. Indeed, many were warning that a downgrade of the US credit rating would trigger such a spike. It didn't happen. Rates fell and not by a little, but by a lot. Let's put the pedal to the metal. Maybe it will wake these imbeciles up or better yet, wake up regular folks and make them see that these "Very Smart People" are a bunch of clueless idiots.
The whole nation has been saving for decades figuring that when they retired they could get the typical 5-6% in a 10 year Treasury and then when we get here, these morons run rates negative and threaten to collapse the whole thing....
What have we done to deserve these morons... they all need to be voted out and let the investigations start.
Nope ... Mosler is right .... trying not to be Greece (as if!) is making you more like Japan.
apj
Matt,
If you haven't already, you should read General Butler's memoirs. That guy had it figured out.
Such a system of terminal annuities could be carried on very simply, without any complications whatever, and with no opportunity of loss to the government, and with immense gain to our people. It is not half as complicated or exposed to danger and loss as is the money-order system of the post-office department, and yet a few years ago it was thought impossible for that to be done by the government.
http://books.google.com/books?id=0LIBAAAAMAAJ&vq=960&pg=PA960#v=onepage&q=terminal%20annuities&f=false
Matt has a point. These yields are fun for traders and central banks but how are we as a society going to transfer money to retirees going forward if the central bank is going to maintain these rates? How many people earning the median 30-40k a year can save a million or million and a half dollars to retire and be able to earn 30k a year? Hope they guess which stock/bond is the next Facebook or Enron? Making savers play yield curve roulette with GS, DB and friends isn't a plan. Buying a 10 yr bond at 2 percent is a vote of No-confidence in current political leadership. Buying a 30 yr bond at 2.75 percent is a vote of no confidence in the entire system of government.
Matt is totally right. These guys are so inept it is effen ubelievable. They see $80 bln in interest income sucked out of the economy in a single year, $400 bln in three, and they still think they are "stimulating" to the point of creating some kind of runaway inflation. It's sheer madness. Morons at the controls, with fancy university degrees from irrelevant economics' departments that teach irrelevant economics. What a club. What a club of idiots. Seriously.
TB,
More or less I look at it as people who have been able to put away in a defined contribution plan have planned for higher rates out to the 10 yr point... so this is going to be a problem...
if you are of retirement age I believe the rule of thumb is majority bonds for your portfolio so when we get to Japan rates (1% 10-yr and 2% 30-yr) forget it.
Unless they come up with a system like Beo outlines here with some decent yields for savers, we are going to have to work till we're 75-80 if there are any jobs left...
Resp,
And the crazy thing? The conventional wisdom (still!) is that lowering rates is ALWAYS stimulatory. There has been virtually no appreciation for the effect on consumption of low rates. Fine when you're in a credit-fuelled bubble, but in the real world, it's a massive problem. I can't point to any research on this outside the MMT school, and that is a disgrace (a bit like mainstream macro!). I agree with you all on this - current leadership is a monumental failure, but it's also a failure of the people to demand better. Don't know if you saw Whitney's latest at Counterpunch, but the idea that a 600bn gift is not even questioned is outrageous ... isn't it?
apj
Anon:
Great article. I'm gonna post it here. http://www.counterpunch.org/2011/12/28/the-600-billion-ripoff/
Anon,
Unbelievable.
This is getting to the point where we have to get someone in there, a Lincolnesque figure, who will just repeal habeas corpus and start locking these people up in GITMO until the smoke clears and we can get this turned around.... we have to get these people out of our nations and into exile... they are destroying what is left of the better parts of western civilization.
Resp,
"a Lincolnesque figure, who will just repeal habeas corpus and start locking these people up in GITMO until the smoke clears and we can get this turned around..."
Matt, have I mentioned lately you should read Benjamin Butler's memoirs?
Abraham Lincoln originally selected General Benjamin Butler as his 1864 vice-presidential candidate... Butler rejected the offer, jokingly saying that he would only accept if Lincoln promised "that within three months after his inauguration he would die".
http://educationforum.ipbhost.com/index.php?showtopic=8214
The Supreme Court decided [in Ex Parte Milligan] that the suspension of habeas corpus was lawful, but military tribunals did not apply to citizens in states that had upheld the authority of the Constitution and where civilian courts were still operating... The argument for the United States was delivered by Benjamin F. Butler, a Massachusetts lawyer and state legislator, and future Governor of Massachusetts.
http://en.wikipedia.org/wiki/Ex_parte_Milligan
Beo,
Do you think that the govt for instance could go after Gross for twitting "who's going to buy them now?" when we have troops deployed?
Could he not be hauled in for broadcasting such a statement while we are in our current national circumstances?
"The credit of the US shall not be questioned..."
Resp,
Article I, Section 8. The Congress shall have power . . .To borrow Money on the credit of the United States;
Amendment XIV, Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
Amendment XIV, Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.
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