Readers, you should be aware that the 30-year Treasury Bond auction today stunk up the joint. $13 billion in 30s were auctioned off at yield of 4.52%, 4 basis points worse than pre-auction talk.
Despite the recent rise in yields, demand was relatively punk, too — with indirect bidding falling to 40.2% from 44% in the prior month’s auction. The bid-to-cover ratio was up slightly to 2.45 (meaning there were $2.45 in bids for every $1 in bonds being offered). But that’s still low given the recent cheapening of the bond. Rick Santelli on CNBC gives this auction an “F+” I agree.
The key message from the bond market: Investors will buy short-term Treasuries six ways ’til Sunday. But amid record and rising debt issuance, Fed monetization of U.S. debt, and rising inflation fears, buyers just are NOT all that willing to lend Uncle Sam money at these yields for the long term. Indeed, the yield difference between 2-year and 30-year Treasuries blew out on the news to 372 basis points. That is the highest in the history of the Bloomberg data I have, which goes back to December 1980.
{ 3 comments… read them below or add one }
and so it starts.
I believe in a couple short years, we will be looking back fondly at these yields.
Mike– You may find this article interesting. My comments are in the [brackets]. I agree with this guy and it is why I don’t think housing has bottomed. Just an artificially induced respite for now. –MichaelM
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U.S. Government’s New Housing Bubble
by: Jeff Nielson
December 11, 2009
As readers here have heard regularly, it is absolutely certain that there will be another down-leg for the U.S. housing market, beginning no later than spring of next year. [I think the money making copy machine will work overtime to prevent this] We already know the latest date, since that is when the next spike in U.S. mortgage resets kicks-in. [Obama will come up with a "Save ARM Homes!" program. Then CNBC and the stock market will cheer.]
There are two differences between the first spike in mortgage resets and the second. Not only will the second spike last for at least two years (longer than the first), but it will be much nastier. A chart from Credit Suisse spells this out perfectly.
Roughly 75% of these mortgages are either “option-ARM” loans, “Alt-A” loans, or “agency” loans (i.e. from Fannie (FNM)/Freddie (FRE)/FHA), with still a few, remaining sub-prime loans sprinkled into the mix. Put another way, only about ¼ of the these mortgages are “prime” – a word which certainly doesn’t mean what it used to, given that these “prime” mortgages are also experiencing their highest level of defaults in history.
The largest category are the option-ARMs, the category of loans which has already had the highest level of defaults. With the vast majority of these mortgage-holders having made minimum payments (or less) on these mortgages, their monthly mortgage payments will increase to multiples of their current payments – even with interest rates at record-lows.
The next-largest category in this group, the so-called “Alt-A” loans were supposed to be of a better quality than sub-prime. However, with default rates on Alt-A mortgages approaching the levels for sub-prime (given that many Alt-A mortgages were also “liar’s loans”), it is clear that this supposed higher quality was yet one more fiction in this massive bubble.
Then we have the “agency” mortgages, from the money-hemorrhaging entities Fannie Mae, Freddie Mac, and now the FHA. [Fed's Cash for Trash Program] If the massive losses which these quasi-government entities have already suffered on previous loans isn’t enough to frighten people about the future defaults coming from this source, then their current lending practices should certainly do the trick.
Providing over 90% of all mortgage-funding for new home loans, the U.S. government has essentially nationalized the U.S. mortgage-market [It is true. Not an exaggeration. We have nationalized housing on our way to socialism.] , but with the free-loading banker-oligarchs able to insert themselves as “middlemen” – taking a cut of profits for themselves, while having zero, personal risk (the new “business model” for the U.S. banking oligarchy).
If this level of risk for the U.S. government is not proof enough of insanity, in itself, then its “lending standards” (or lack thereof) clearly pushes it past that threshhold. The same U.S. government which is taking miniscule down-payments on these mortgages (90% of which are only 4% or less) with one hand, is handing out an $8,000 cheque (again paid for by taxpayers) with the other hand. [No money down and Fed is paying people to buy houses! I don't believe this guy knows about the $2,500 the Fed gives you if you default and want to leave!]
The net effect is that for virtually every new mortgage which these government entities are initiating of $250,000 or less there is zero (net) down-payment. [No one wants to open their eyes about this but it is true. Free houses again.] Given that a large majority of current sales in the U.S. are below this level, this means that most of the home-buyers in the U.S. this year are putting up zero down-payments.
To perfect their new Ponzi-scheme for the U.S. housing market, the Federal Reserve allows the banksters to “borrow” money at 0%. The banksters then “deposit” this money with the Federal Reserve as a “savings account” for which they collect interest, while paying no interest on the “loan”. In other words the Federal Reserve is simply giving the banksters free money (they are currently collecting interest on over $1 trillion of these “loans”). [This is one way that banksters make money off totally free tax payer money]
But the money doesn’t actually sit there. Instead the Fed uses that money to buy U.S. mortgage bonds – the only thing keeping U.S. mortgage rates several percent lower than they would be otherwise. [Again this is true. Totally artificial low mortgage rates using fake Monopoly money] So, to begin with, the new Ponzi-scheme implodes as soon as the U.S. government stops “buying” its own mortgage bonds (with 100% of the money used to “buy” those bonds simply being printed on Bernanke’s magic printing-press). [But when will they stop printing money? Seems like never to me.]
Obviously, even the U.S. government can only soak-up so many trillions of dollars in this manner without taking the U.S. dollar down to zero.So we already know this next Ponzi-scheme will end badly. [The power of the Fed Spin Machine is awesome which is preventing this now] The U.S. government is initiating millions of new mortgages, to questionable buyers, at interest rates which can only remain artificially low for as long as the U.S. keeps “buying” all of its own mortgage bonds. [Just one ponzi scheme]
However, this new (and even more fraudulent) bubble is taking place at a time when:
1. U.S. mortgage defaults and delinquencies are at all-time record levels
2. U.S. banks are holding millions of foreclosed properties off the market [Another Fed secret thanks to killing Mark-to-Market accounting]
3. Millions more homes are already in the “foreclosure pipeline”
4. U.S. unemployment continues to worsen (even the phony numbers)
5. U.S. banks are still starving the economy of credit
6. Record numbers of homeowners are already “underwater”
7. A second, larger, worse spike in U.S. mortgage resets is about to begin
8. Retiring baby-boomers need to sell at least $1 trillion in real estate
Does this seem like the time that U.S. taxpayers should be bank-rolling the entire U.S. mortgage market, with most of those new mortgages being zero down-payment loans (and in many cases to people of questionable creditworthiness)?
Keep this analysis in mind the next time you hear some clueless, talking-head talk about a “bottom” in the U.S. housing market.
Disclosure: none
In your Jan. 15 M&M message you write “And consider allocating some of your money to foreign, short-term debt.” Would you offer some specific posibilities?
Everett