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#181
cobran20 
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Posted 01 September 2011 - 10:47 AM
Despite all the effort the US 10 year bond yields failed to break above their long term trendline after 2008. But should the yields hold the current low, a double bottom could be in place. That would give Ben something to worry about down the track!
#184
cobran20
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Posted 02 September 2011 - 11:45 AM
wulfgar, on 02 September 2011 - 07:27 AM, said:
Yes, expect the bubble to pop about 10 years or more.
Show us where the bubble popped for Japan?
Show us where the bubble popped for Japan?
It is one of the scenarios that it can be a repeat of the 1940-1950's, where it took a decade before rates began to climb.
#185
cobran20
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Posted 05 October 2011 - 09:17 PM
A Bubble in Treasury Debt
Quote
But what if the bubble is not in some underlying asset but in the debt instrument itself?
That could well describe the present situation in the Treasury market, where yields almost across the board have plumbed fresh historic depths and where the 30-year T-bond recently surpassed an epic December 2008 nearest-futures high (bond prices move inversely to yields) by more than four points in a frenzy of safe-haven buying (Figure 1). Interestingly, however, despite the 30-year yield plunging to as little as 2.75% on September 23, it has so far failed to match a December 18, 2008 low of 2.52%.
Figure 1: Long Term Interest Rates
* * *
September 23 came two days after the Fed officially announced its well-advertised “Operation Twist,” designed to flatten the yield curve (the spread between long- and short-term rates) by selling shorter-term paper to finance the purchase of $400 billion of longer-term Treasurys. On the surface, this would appear unequivocally bullish for the long bond. Yet in 2008 the yield on 30-year T-bonds somehow managed to bottom just a couple of days after the central bank reduced its Fed Funds target rate from 1% to a range between zero and 0.25%.
In the next classic case of “Buy on the rumor; sell on the news,” T-bonds established an important lower top on August 25, 2010, a mere two days before Fed Chairman Ben Bernanke telegraphed a second round of aggressive quantitative easing (“QE2″) in his annual Jackson Hole, Wyoming speech. Once the Federal Reserve finally confirmed its plans to launch QE2 on November 3, long-term Treasurys acted very poorly for over three months.
Bond bulls like to point to today’s staggering debt load as an impediment to future economic growth that promises to keep interest rates in check for a long time to come. But the last time the deficit got nearly as high relative to GDP (Gross Domestic Product) was in 1946, when long-term interest rates fell to historic lows at the climax of a 26-year bull market in bonds. Anyone who loaned money to the U.S. government back then regretted it later, as rates skyrocketed to unimaginable heights over the next 35 years (Figure 2).
Figure 2: Bonds Nearest Futures
* * *
The 1940s also marked the last instance before the current era when the U.S. government pushed short rates to artificially low levels and kept them there. Then too, many expected the economy to lapse back into recession or depression with the end of the war. A flattening of the yield curve – as the Fed is now attempting to bring about – preceded the concluding depths in long-term rates.
With stock and commodity markets on the ropes, Treasurys could continue to benefit for a good while. The financial landscape is littered with the bodies of fund managers and pundits who prematurely tried to call an end to the secular bull market. But the downtrend in rates was over a quarter-century old in 1946 as well.
Investors in September 1981, when interest rates on long-term bonds subsequently peaked in the mid-teens during a third straight year of double-digit inflation, would have been incredulous at the thought that people would rush to loan money to the federal government at less than 2% for 10 years or 3% for 30 years. Anyone doing so now has had 30 years to lock in a better return while still looking forward to rising bond prices.
That could well describe the present situation in the Treasury market, where yields almost across the board have plumbed fresh historic depths and where the 30-year T-bond recently surpassed an epic December 2008 nearest-futures high (bond prices move inversely to yields) by more than four points in a frenzy of safe-haven buying (Figure 1). Interestingly, however, despite the 30-year yield plunging to as little as 2.75% on September 23, it has so far failed to match a December 18, 2008 low of 2.52%.
Figure 1: Long Term Interest Rates
* * *
September 23 came two days after the Fed officially announced its well-advertised “Operation Twist,” designed to flatten the yield curve (the spread between long- and short-term rates) by selling shorter-term paper to finance the purchase of $400 billion of longer-term Treasurys. On the surface, this would appear unequivocally bullish for the long bond. Yet in 2008 the yield on 30-year T-bonds somehow managed to bottom just a couple of days after the central bank reduced its Fed Funds target rate from 1% to a range between zero and 0.25%.
In the next classic case of “Buy on the rumor; sell on the news,” T-bonds established an important lower top on August 25, 2010, a mere two days before Fed Chairman Ben Bernanke telegraphed a second round of aggressive quantitative easing (“QE2″) in his annual Jackson Hole, Wyoming speech. Once the Federal Reserve finally confirmed its plans to launch QE2 on November 3, long-term Treasurys acted very poorly for over three months.
Bond bulls like to point to today’s staggering debt load as an impediment to future economic growth that promises to keep interest rates in check for a long time to come. But the last time the deficit got nearly as high relative to GDP (Gross Domestic Product) was in 1946, when long-term interest rates fell to historic lows at the climax of a 26-year bull market in bonds. Anyone who loaned money to the U.S. government back then regretted it later, as rates skyrocketed to unimaginable heights over the next 35 years (Figure 2).
Figure 2: Bonds Nearest Futures
* * *
The 1940s also marked the last instance before the current era when the U.S. government pushed short rates to artificially low levels and kept them there. Then too, many expected the economy to lapse back into recession or depression with the end of the war. A flattening of the yield curve – as the Fed is now attempting to bring about – preceded the concluding depths in long-term rates.
With stock and commodity markets on the ropes, Treasurys could continue to benefit for a good while. The financial landscape is littered with the bodies of fund managers and pundits who prematurely tried to call an end to the secular bull market. But the downtrend in rates was over a quarter-century old in 1946 as well.
Investors in September 1981, when interest rates on long-term bonds subsequently peaked in the mid-teens during a third straight year of double-digit inflation, would have been incredulous at the thought that people would rush to loan money to the federal government at less than 2% for 10 years or 3% for 30 years. Anyone doing so now has had 30 years to lock in a better return while still looking forward to rising bond prices.
#187
cobran20
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Posted 22 October 2011 - 04:49 AM
cobran20, on 01 September 2011 - 10:47 AM, said:
Despite all the effort the US 10 year bond yields failed to break above their long term trendline after 2008. But should the yields hold the current low, a double bottom could be in place. That would give Ben something to worry about down the track!
The 10 year bond made a lower low than 2008, whilst the 30 year made a higher low. Both are now rising...
#188
Mr Medved
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Posted 31 October 2011 - 06:40 AM
European Bailout Fund Could ‘One Day’ Issue Bonds in Yuan, Regling Says
http://www.bloomberg...gling-says.html
Oct 29, 2011 6:22 PM ET
The euro area’s bailout fund could at some point issue bonds denominated in the Chinese currency, Chief Executive Officer Klaus Regling said in Beijing today.
“We are authorized to use any currency we want if it seems efficient so we may one day issue in U.S. dollars or renminbi,” said Regling, head of the European Financial Stability Facility, using another name for the yuan. “It depends whether the Chinese authorities would approve of that. I could imagine that over the years that might happen, maybe not immediately but maybe one day,” he said.
European leaders are seeking financial support from China, holder of the world’s largest foreign-exchange reserves, for an enlarged rescue fund aimed at containing the region’s sovereign- debt crisis. Vice Finance Minister Zhu Guangyao said yesterday his government wants more details about the “technicalities” before making any decision on investment.
Regling said yesterday that China, which has been a “good” and “loyal” purchaser of EFSF bonds so far, hasn’t set any conditions for buying more of the securities.
While China is the world’s second-largest economy, its currency isn’t freely convertible for investment purposes. Global investors have limited access to bonds and other yuan- denominated investments inside the country.
The central government has been encouraging greater use of the yuan overseas, notably in Hong Kong, and boosted trade settlement agreements and currency swaps with Asian nations to create more channels for it to circulate offshore.
Investor Protection
As one step towards boosting the global role of the yuan, French President Nicolas Sarkozy -- current head of the Group of 20 - wants the yuan included in the International Monetary Fund’s Special Drawing Rights system. The SDR is a unit of account derived from the value of the dollar, yen, pound and euro used in IMF lending and currency reserves.
The EFSF is exploring whether to create a special purpose vehicle within the IMF as a channel for money for the enlarged rescue fund, Regling said yesterday and Zhu said the Chinese government wants to know details such as how the senior-debt portion would be structured.
The EFSF will take the junior tranche of debt sold by the vehicle, Regling said today at a forum at Tsinghua University.
“If something goes wrong the first loss would be carried by the EFSF that would be around 20 percent,” he said. “If other investors join this SPV they know they would only incur a loss if a certain investment loses more than 20 percent. So that’s the protection,” Regling said.
Greece’s exit from the euro would be “an economic disaster” as its exchange rate would be quite weak and debt denominated in euros or other international currencies “would shoot up and probably become unserviceable,” Regling said.
http://www.bloomberg...gling-says.html
Oct 29, 2011 6:22 PM ET
The euro area’s bailout fund could at some point issue bonds denominated in the Chinese currency, Chief Executive Officer Klaus Regling said in Beijing today.
“We are authorized to use any currency we want if it seems efficient so we may one day issue in U.S. dollars or renminbi,” said Regling, head of the European Financial Stability Facility, using another name for the yuan. “It depends whether the Chinese authorities would approve of that. I could imagine that over the years that might happen, maybe not immediately but maybe one day,” he said.
European leaders are seeking financial support from China, holder of the world’s largest foreign-exchange reserves, for an enlarged rescue fund aimed at containing the region’s sovereign- debt crisis. Vice Finance Minister Zhu Guangyao said yesterday his government wants more details about the “technicalities” before making any decision on investment.
Regling said yesterday that China, which has been a “good” and “loyal” purchaser of EFSF bonds so far, hasn’t set any conditions for buying more of the securities.
While China is the world’s second-largest economy, its currency isn’t freely convertible for investment purposes. Global investors have limited access to bonds and other yuan- denominated investments inside the country.
The central government has been encouraging greater use of the yuan overseas, notably in Hong Kong, and boosted trade settlement agreements and currency swaps with Asian nations to create more channels for it to circulate offshore.
Investor Protection
As one step towards boosting the global role of the yuan, French President Nicolas Sarkozy -- current head of the Group of 20 - wants the yuan included in the International Monetary Fund’s Special Drawing Rights system. The SDR is a unit of account derived from the value of the dollar, yen, pound and euro used in IMF lending and currency reserves.
The EFSF is exploring whether to create a special purpose vehicle within the IMF as a channel for money for the enlarged rescue fund, Regling said yesterday and Zhu said the Chinese government wants to know details such as how the senior-debt portion would be structured.
The EFSF will take the junior tranche of debt sold by the vehicle, Regling said today at a forum at Tsinghua University.
“If something goes wrong the first loss would be carried by the EFSF that would be around 20 percent,” he said. “If other investors join this SPV they know they would only incur a loss if a certain investment loses more than 20 percent. So that’s the protection,” Regling said.
Greece’s exit from the euro would be “an economic disaster” as its exchange rate would be quite weak and debt denominated in euros or other international currencies “would shoot up and probably become unserviceable,” Regling said.
#189
Mr Medved
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Posted 02 November 2011 - 01:49 AM
China advocates Europe borrow in renminbi
Commentary: If you want a friend in Beijing, get a dog
http://www.marketwat...k=home_carousel
BEIJING (MarketWatch) — In the wake of last week’s new deal on European debt, China is serving up a steely reminder to Europe: you may have to start borrowing in renminbi to gain a sympathetic hearing from the world’s largest creditor. Already officially enshrined by U.S. Secretary of State Hillary Clinton as bankers to the world’s biggest debtor the Americans, the Chinese have no wish to become, too, a last-ditch lender to the Europeans. The idea of renminbi borrowing has been put forward by Beijing advisers and officials as a way of lowering Chinese foreign-exchange risks caused by further exposure to Europe — and also of using the Europeans’ latest discomfiture to advance China’s international monetary-policy agenda.
If this happened, it might pave the way for the U.S. Treasury eventually to issue renminbi-denominated paper — a momentous moment in world monetary history .
Klaus Regling, the head of the European EFSF rescue fund, was in Beijing on Friday to display to his Chinese hosts the latest selection of wares from Europe’s bargain-basement bailout bazaar. During his visit, when he gave a lecture at Tsinghua University, Regling did not rule out renminbi funding in future.
It was a mistake for the European authorities to give the impression that Regling’s visit was part of a post-summit funding spree. Publicity surrounding his journey to Beijing immediately after the Brussels summit was bound to raise expectations to unmanageable heights.
The Chinese were already unamused by last week’s European Union postponement of regular high-level consultations because of the elongated EU summit. Allowing headlines to develop — however unrealistically — that Europe expects Oriental largess to flow in the wake of the bailouts was not a clever move.
Regling somewhat unwisely commented that China had been “a good, loyal” buyer of EFSF bonds in the past. Confusing day-to-day bond market sentiment with human characteristics like loyalty appears to suggest a fundamental inability to understand what markets are all about: making money.
Unfortunately that’s exactly what investment in Greek bonds has not done for those holders luckless enough to be sitting on 50% losses on the face value of their purchases. Never in the field of bond market write-downs has one country’s credit standing — Greece’s — been verbally defended by so many, to so little avail. China is not likely to forget that when the next crowd of European sovereign-debt salesmen hits town.
The Chinese have shown impatience with Europe’s stop-start approach to the European debt crisis. Like other large investors throughout Asia, they are surprised that travelling Europeans expect them to buy bonds from hard-pressed European governments when the institution they have expected to be the lender of last resort, the European Central Bank, balks (for whatever reason) at staunching the rise in Italian bond yields.
Certainly, any expectation by Regling — who was at pains to point out that his trip represented “one of my regular visits” to China — that his foray will result in new bonds of financial friendship looks likely to go unrequited. One has to adapt only slightly Harry Truman’s phrase: “If you want a friend in Beijing, get a dog.”
In a telephone call on Thursday to discuss this week’s G20 summit in Cannes, President Nicolas Sarkozy explained the latest bailout measures to President Hu Jintao. The Chinese leader said he hoped they would “help Europe stabilize financial markets, overcome difficulties and push forward economic recovery and development,” according to the Chinese Foreign Ministry’s website. Well, that’s all right then.
Chinese officials say that, rather than considering further bilateral lending to Europe through the byzantine assortment of additional EFSF instruments, China is far more likely to agree financing via additional multilateral agreements with the International Monetary Fund. These would provide the Chinese with more leverage over conditionality, expose them to fewer risks and also allow the emerging-market economies as a bloc to lay down the law more effectively with regard to the Western nations that still dominate the Fund.
Chinese observers say the Beijing government is under more pressure than ever before from an alert Internet-savvy public to resist cash appeals from errant European governments when millions of ordinary Chinese are struggling with worrisome social, economic and environmental conditions and even abject poverty.
One well-connected Chinese source points out that, during the Asian currency crisis, Koreans sold gold to help the government, whereas the Greeks go on strike. He underlines that, even if Europe does get more vendor finance from creditor countries, China is not expecting Europe dramatically to increase its higher value imports from China . “We export a lot of labor-intensive products, we get dollars in return, we buy euro bonds, and they decline. We’d be better of investing in developing countries’ infrastructure or buying high-tech European companies.”
David Marsh is co-chairman of the Official Monetary and Financial Institutions Forum.
Commentary: If you want a friend in Beijing, get a dog
http://www.marketwat...k=home_carousel
BEIJING (MarketWatch) — In the wake of last week’s new deal on European debt, China is serving up a steely reminder to Europe: you may have to start borrowing in renminbi to gain a sympathetic hearing from the world’s largest creditor. Already officially enshrined by U.S. Secretary of State Hillary Clinton as bankers to the world’s biggest debtor the Americans, the Chinese have no wish to become, too, a last-ditch lender to the Europeans. The idea of renminbi borrowing has been put forward by Beijing advisers and officials as a way of lowering Chinese foreign-exchange risks caused by further exposure to Europe — and also of using the Europeans’ latest discomfiture to advance China’s international monetary-policy agenda.
If this happened, it might pave the way for the U.S. Treasury eventually to issue renminbi-denominated paper — a momentous moment in world monetary history .
Klaus Regling, the head of the European EFSF rescue fund, was in Beijing on Friday to display to his Chinese hosts the latest selection of wares from Europe’s bargain-basement bailout bazaar. During his visit, when he gave a lecture at Tsinghua University, Regling did not rule out renminbi funding in future.
It was a mistake for the European authorities to give the impression that Regling’s visit was part of a post-summit funding spree. Publicity surrounding his journey to Beijing immediately after the Brussels summit was bound to raise expectations to unmanageable heights.
The Chinese were already unamused by last week’s European Union postponement of regular high-level consultations because of the elongated EU summit. Allowing headlines to develop — however unrealistically — that Europe expects Oriental largess to flow in the wake of the bailouts was not a clever move.
Regling somewhat unwisely commented that China had been “a good, loyal” buyer of EFSF bonds in the past. Confusing day-to-day bond market sentiment with human characteristics like loyalty appears to suggest a fundamental inability to understand what markets are all about: making money.
Unfortunately that’s exactly what investment in Greek bonds has not done for those holders luckless enough to be sitting on 50% losses on the face value of their purchases. Never in the field of bond market write-downs has one country’s credit standing — Greece’s — been verbally defended by so many, to so little avail. China is not likely to forget that when the next crowd of European sovereign-debt salesmen hits town.
The Chinese have shown impatience with Europe’s stop-start approach to the European debt crisis. Like other large investors throughout Asia, they are surprised that travelling Europeans expect them to buy bonds from hard-pressed European governments when the institution they have expected to be the lender of last resort, the European Central Bank, balks (for whatever reason) at staunching the rise in Italian bond yields.
Certainly, any expectation by Regling — who was at pains to point out that his trip represented “one of my regular visits” to China — that his foray will result in new bonds of financial friendship looks likely to go unrequited. One has to adapt only slightly Harry Truman’s phrase: “If you want a friend in Beijing, get a dog.”
In a telephone call on Thursday to discuss this week’s G20 summit in Cannes, President Nicolas Sarkozy explained the latest bailout measures to President Hu Jintao. The Chinese leader said he hoped they would “help Europe stabilize financial markets, overcome difficulties and push forward economic recovery and development,” according to the Chinese Foreign Ministry’s website. Well, that’s all right then.
Chinese officials say that, rather than considering further bilateral lending to Europe through the byzantine assortment of additional EFSF instruments, China is far more likely to agree financing via additional multilateral agreements with the International Monetary Fund. These would provide the Chinese with more leverage over conditionality, expose them to fewer risks and also allow the emerging-market economies as a bloc to lay down the law more effectively with regard to the Western nations that still dominate the Fund.
Chinese observers say the Beijing government is under more pressure than ever before from an alert Internet-savvy public to resist cash appeals from errant European governments when millions of ordinary Chinese are struggling with worrisome social, economic and environmental conditions and even abject poverty.
One well-connected Chinese source points out that, during the Asian currency crisis, Koreans sold gold to help the government, whereas the Greeks go on strike. He underlines that, even if Europe does get more vendor finance from creditor countries, China is not expecting Europe dramatically to increase its higher value imports from China . “We export a lot of labor-intensive products, we get dollars in return, we buy euro bonds, and they decline. We’d be better of investing in developing countries’ infrastructure or buying high-tech European companies.”
David Marsh is co-chairman of the Official Monetary and Financial Institutions Forum.
#190
cobran20
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Posted 02 November 2011 - 02:40 AM
Mr Medved, on 02 November 2011 - 01:49 AM, said:
China advocates Europe borrow in renminbi
That has the potential of being a very costly option for the PIIGS unless they cover themselves for exchange rate fluctuations. I wonder if Armstrong will publish something about this idea.
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#194
wulfgar
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Posted 02 December 2011 - 08:09 AM
cobran20, on 02 December 2011 - 07:06 AM, said:
The yields on the long term bonds look like they want to rise and the 2008 low is not being threatened on the 30 year bonds. I wonder how Ben feels about it and what can he do?
If worst comes to worst, the US treasury will introduce exchange controls. Meaning Anders won't be able to get his USD out and will have to use them on trips to Disneyland. They'll keep their bond market going no matter what.
#196
cobran20
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Posted Yesterday, 02:17 AM
cobran20, on 02 December 2011 - 07:06 AM, said:
The yields on the long term bonds look like they want to rise and the 2008 low is not being threatened on the 30 year bonds. I wonder how Ben feels about it and what can he do?
I'll be surprised if Ben doesn't get a rude surprise in the next few months!
#197
boz
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Posted Yesterday, 10:26 PM
keep also an eye on the uk bonds, they started to go up once things in eu seems stabilising a bit. This is different from switzerland where yield stay low. So, no sync there. Also the gap with french yield is halved in few weeks
#198
cobran20
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Posted Today, 04:34 AM
boz, on 04 February 2012 - 10:26 PM, said:
keep also an eye on the uk bonds, they started to go up once things in eu seems stabilising a bit. This is different from switzerland where yield stay low. So, no sync there. Also the gap with french yield is halved in few weeks
I think that the central banks are going to get their wishes - inflation ... and in spades. By the time they realise their mistakes, the horse will have bolted!
#199
wulfgar
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Posted Today, 08:36 AM
cobran20, on 05 February 2012 - 04:34 AM, said:
I think that the central banks are going to get their wishes - inflation ... and in spades. By the time they realise their mistakes, the horse will have bolted!
You can only get inflation by printing money....and guess what....they don't print enough money.
You're still living in the pre Basel Keynesian world, long gone and dead.
In 1990, there was a ratio of 20 USD to 1 AUD......today the ratio is the same. They (Anglo's and Europe) all print currency in accordance with secret agreements.
This post has been edited by wulfgar: Today, 08:37 AM
