Friday, May 22, 2009
Yesterday's $45 billion bond issue fell flat, along with the stock market, so where is the money going? As Bernanke employs QE, the big question is are foreign sovereign funds dumping their bonds at the same time, driving up yields? Karl Denninger writes in his blog:
There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.
Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.
So now what Ben?
If Foreign Central Banks are selling into Ben's bid then the game is literally weeks or even days away from being over.
May 21, 2009, 11:11 a.m. EST
Treasury to sell $101 billion in debt next week
NEW YORK (MarketWatch) -- The Treasury Department said Thursday it plans to sell $101 billion in debt next week in its monthly round of shorter-term note offerings. The government will sell $40 billion in 2-year notes (UST2YR 0.83, 0.00, -0.48%) on Tuesday, matching the amount expected by Wrightson ICAP. It will also offer $35 billion in 5-year notes (UST5YR 2.01, -0.01, -0.69%) the following day and $28 billion in 7-year notes next Thursday. The 7-year security was reintroduced in March to help the government spread out the increasing debt issuance needed to fund all of lawmakers' stimulus plans and the Fed's programs to stabilize financial markets.
This next week will prove to be pivotal.
Posted by Takwira at 4:46 PM