bonds & yields

[flow5]

5 year & longer dated securities hit 2013 lows today.

www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Vt is the unknown (but the currency-deposit ratio is falling). Wouldn’t take much of an increase in money’s turnover to lower bond prices (at least until July).

The Fed is purchasing longer-dated securities but prices are now starting to fall regardless. I.e., the effective FFR is moving up.

www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm

www.newyorkfed.org/markets/ambs/ambs_schedule.html

TREASURIES:

The Desk plans to purchase approximately $45 billion in Treasury securities over the month of March

MORTGAGE BACKED SECURITIES:

The Desk plans to purchase $40 billion in additional agency MBS over the month of March. <o:p

The Desk will release the amount of additional planned purchases for April 2013 at 2 p.m. on March 29, 2013.

[Aman A.K.A. Ahamburger]

Mar 9, 2013 2:24:51 GMT -5 Aman A.K.A. Ahamburger said:

Too funny, you read my mind flow I was going to update the corporate bonds thread on here to just talk about bonds. BiMetal and I were chatting a bit about this. Isn't the market a bit toppy for the time being? I mean,Time to take some profits on stocks?Great rotation? Advisers buying bonds to adjust asset mix. A 10 yr note at 2.05% these last few years would have fetched 115. If there is a correction 99.50 on a 10yr is going to look very cheap.... Interests rates do have to stay low for 2013 for sure to keep the housing market on track while the new taxes and budget cuts take hold.

The market has move sideways since the 9th and the price on 10yr bonds has risen to 100 for a 1.93%.  Gaza was just hit with rockets while Obama was visiting and the $85 billion in cuts are starting to take effect starting in April.  Today, Data Shows Euro Zone Economy’s Slide Accelerates, and we are all aware that Cyprus is in negotiations with Russia to save them.  Could be by summer that 2.05% ten yr note is going to fetch a fair price. 

[flow5]

The WallStreet Examiner. The supply/demand stats he follows are more comprehensive than my metrics:

Lee Adler: "After seeing the most bullish liquidity conditions of the year, the markets will still see bullish liquidity. In addition to the massive settlement of Fed purchases of MBS at mid month, $58 billion in Treasury debt was paid down April 15-18, and another $40 billion was paid down on April 25, putting cash back into the pockets of the holders of that paper, including Primary Dealers. Reduced Treasury supply and ongoing QE from the Fed and BoJ will continue the bullish conditions, interrupted only by the settlement of new Treasury notes on April 30.

Strong tax collections will help in the absorption of new Treasury supply on Tuesday and then more paydowns will follow on Thursday as the Treasury reduces new offerings by $9 billion below forecast. We’ve expected reduced Treasury supply and every indication now is that this trend will continue. Other indicators remain bullish and some especially including foreign central bank purchases, are just turning bullish. This report covers them with charts, explanations, and estimates of what to expect as a result.

wallstreetexaminer.com/2013/04/28/are-co.../

[flow5]

The growth in commercial bank credit is deceptive.  Reserve bank credit has displaced loan & lease growth on the CB's balance sheets (as the Central Bank buys MBS).

soberlook.com/2013/04/a-slowdown-in-us-lending-or-ramp-up-in.html

vs

ZeroHedge:

www.zerohedge.com/news/2013-04-28/how-fed-holds-2-trillion-and-rising-us-gdp-hostage

[flow5]

WSJ:

"The federal government said Monday it would pay down a small portion of the national debt this quarter for the first time in six years.

The debt reduction, seen as temporary, is a sign that higher tax receipts and spending cuts are improving Washington's finances. The respite in borrowing will likely give the Obama administration a bit more time before running up against the federal debt ceiling.

The Treasury Department said that it expects to retire a net $35 billion in bonds, notes and bills from April to the end of June. That compares with its estimate from earlier this year that it would rack up an additional $103 billion in marketable debt in the second quarter.

"The paydown this quarter, the first since 2007 is emblematic of the turn in budget finances from horrible, to grim on their way to steadily better," Eric Green, global head of research at TD Securities, said in a note.

The drawdown comes in a season that traditionally sees relatively strong government receipts coming from April tax payments. But in the same quarter a year earlier, the Treasury Department boosted net debt outstanding by $172 billion.

The revenue boost this year came from higher tax rates for wealthier households and higher payroll taxes, as well as the impact of wage increases and delays in paying individual income-tax refunds.

Still, the usual shortfalls will likely return quickly. The Treasury said it expects to borrow a net $223 billion in the July-to-September period. And the budget deficit will likely hit $845 billion in the fiscal year ending Sept. 30, down from more than $1 trillion the prior four years, according to the Congressional Budget Office. U.S. debt stood at $16.718 trillion Friday.

Lawmakers in January approved a short-term suspension of the debt ceiling, allowing the government to keep paying its bills while the White House and Congress negotiate new spending and tax plans. The measure passed by Congress suspended the debt cap until May 18, when it will re-emerge at the level of debt on that day.

If that date comes without an agreement being reached, the Treasury would deploy so-called extraordinary measures, juggling accounts to keep debt below that level while continuing to pay its bills.

Treasury Secretary Jacob Lew earlier this month declined to predict how long those measures would last. Treasury officials are expected to offer new debt-ceiling details on Wednesday when they make their quarterly announcement on debt management policy.

Lou Crandall, chief economist at Wrightson ICAP, estimates that the Treasury could stay under the limit at least until early September, and possibly as late as early October, based on current spending and revenue patterns.

Government-controlled mortgage-finance company Fannie Mae could also pay as much as $61.5 billion to the U.S. Treasury as a part of its rescue, a move that would buy the government even more time. Mr. Crandall estimates that a special dividend payment from Fannie Mae would give the Treasury headroom into October.

The Treasury earlier this year warned that its extraordinary measures would give only 2½ to three months of breathing space

[flow5]

I was tricked in April/May using the release data, instead of the Board's data download program:

This is how I forecast AAA corporates in 81 (only using bank debits):

2013-01 ,,,,,,, 0.025
2013-02 ,,,,,,, 0.025
2013-03 ,,,,,,, 0.021
2013-04 ,,,,,,, 0.021
2013-05 ,,,,,,, 0.023
2013-06 ,,,,,,, 0.022
2013-07 ,,,,,,, 0.018 rates will reverse to the downside
2013-08 ,,,,,,, 0.012
2013-09 ,,,,,,, 0.012
2013-10 ,,,,,,, 0.011

It's a 24 month moving average of the 24 month rate-of-change in required reserves. The caveat is that you average the figures for the same length of time as rates move in one direction & then the other.

[Aman A.K.A. Ahamburger]

The 10yr and 30yr that was bought at the start of march could have been sold at the end of April for around a 10% profit, as the price rose in that time.  Now that prices have fallen back to where they were in March and we are looking at volatility coming into the market with a slow down in the BRICs and a war in the Mid East that could spread into a recession plagued EU, I had some thoughts. 

The still moderate US economy is now being supported by a recovering housing market, as govt spending has continued to shrink, and because of these facts, could we see interest rates held down by a flight to safety as these event come to a head?  If so, wouldn't that essentially allow the FRB to slow down on easing over the summer without disturbing the housing markets recovery?  

Lets face it, if things really start to escalate in Europe and the Mid East of the next three or four months it will be a boon to US manufacturing, it is what it is. Stay  .

One of the Most Profitable Strategies in Bond Investing

[flow5]

The longer the duration, the more sensitive the bond is to interest-rate fluctuations

[flow5]

2012-12 ,,, 0.154 ,,, 0.511
2013-01 ,,, 0.169 ,,, 0.594
2013-02 ,,, 0.154 ,,, 0.603 price spike
2013-03 ,,, 0.156 ,,, 0.488
2013-04 ,,, 0.150 ,,, 0.498
2013-05 ,,, 0.136 ,,, 0.539 price spike
2013-06 ,,, 0.098 ,,, 0.512
2013-07 ,,, 0.106 ,,, 0.426
2013-08 ,,, 0.071 ,,, 0.283

Rates are headed lower.

[flow5]

I've been watching the financial markets for about 50 years. But it still confuses me when stocks & bonds decouple from macro-economics.

Rates-of-change (roc's) in money flows (our means-of-payment money times its transactions rate of turnover) mirror roc's in nominal-gDp (proxy for all transactions in Irving Fisher's "equation of exchange"). I.e., roc's in aggregate monetary purchasing power = roc's in economic activity.

Roc's in MVt (10 month roc in the proxy for real-output), have peaked & have begun to decelerate this July. Roc's in the bond proxy (24 month moving avg. in the 24 mo/roc), are due to suddenly plunge in August.

I.e., rates are headed lower with stocks to follow (leastwise, that's what 100 years of data would lead one to expect - a "regression toward the mean").