Short Term Treasuries Telling Us Something???
A: When 1-Month Treasury yields turn negative it makes me wonder why investors are parking money for the very near term into vehicles that protect the full principal? Its generally a tell tale sign of risk aversion. As money pours into the short term protection of 1-Month Treasuries, yields once again fell to negative for the first time since March 2009. Something worth keeping an eye on although we can't read as much into it when the fed continues to maintain a zero interest rate overnight policy.
You can take a look at the chart to the right showing you the yields on 1-Month Treasury bills for the past year - noticing the move to -0.01%. According to Bloomberg, "U.S. One-Month Bill Rate Negative for First Time Since March":
“There’s some flight to quality with concern around sovereign risk around the globe, like Greece,” said Anshul Pradhan, an interest-rate strategist in New York at Barclays Plc, one of the 18 primary dealers that are required to bid at Treasury auctions. “Secondly, the bill universe is likely to shrink as the Treasury continues to term out debt, tilting the balance further toward demand.”Whether its fear of sovereign default, China's clamps on bank lending, a double dip, a move from accommodating stance by our Fed, Bernanke's renomination, the AIG/Geithner email debacle, etc.. who knows. What's clear is that money for the near term is coming out of riskier assets (after a search for yield for most of 2009) and into the safety of short term treasuries driving yields negative.
Greece’s 10-year bonds fell, pushing the premium investors demand to hold the securities instead of benchmark German bunds to the most since the inception of the euro, on concern the nation’s finances will worsen.
Bill rates turned negative for the first time and note and bond yields reached record lows at the end of 2008 as investors sought refuge in government securities after the collapse of Lehman Brothers Holdings Inc. and a freeze in global credit markets.
Treasury sold $10Bln in 4-week bills yesterday with investors only getting their principal investment back in return. Considering where we came from, when fear changes investor attitudes from chasing risk to simply getting their initial investment in full back, it's worth watching as an anti-risk trade might be setting up. This also tells me investors absolutely expect the fed to maintain a ZIRP policy. With a ZIRP policy in place, we can't read too much into short term yields turning negative but it still is something worth watching for in the near term as a risk aversion trade.
Posted by Noah
Wed Jan 27th, 2010 01:17 PM
I see it was a worthy enough headline to make Calculated Risk too
http://www.calculatedriskblog.com/2010/01/one-month-treasury-bill-rates-turn.html
no thoughts? manhattan real estate followers dont like these topics?
Well, I see some more listings coming on this week, I have active inventory up 5% in past 7 days..lets see if it continues and pace of sales volume holds up
Posted by Fred
Wed Jan 27th, 2010 01:38 PM
I am waiting for inventory to climb further as we get into the reality of the new normal. The narrative that Manhattan sufficiently discounted is the next focus point. NYT (not that I love the NYT) ran a story about Class A multi coming on line. It's going to hit the lower end sales environment because it is so much cheaper to rent these days than own.
There was a little blurb out over the weekend that said 2009 multifam investment sales were off 80% or something. I have yet to see a meaningful pick up in that segment, which tells you something about what investors think about Manhattan's medium term job prospects.
Where's my buddy Anti-Fred?
Posted by FairValue
Wed Jan 27th, 2010 03:02 PM
The Fed's plan to guide cash into risky assets by punishing savers with low rates is not working as well as they would like. Investors, whether they be retail, institutional or sovereign, remain much more concerned about the return *of* their money than the return *on* their money. This appears to me to be a secular shift.
The fact that we are still at zero percent on T-bills after a 70% stock market rally should scare the hell out of the Fed.
Bottom line, there is still far too much debt in the system and asset values are still far too high. Stocks, bonds, real estate: whatever the case may be, the prices are still too high relative to the savings and earnings capacity of the country.
As far as NYC real estate is concerned, don't even get me started. Just an opinion but the modest decline in prices so far is a direct result of all the cash buyers over the course of the bubble. Sans massive general inflation, big price declines are coming. It just takes a lot longer in areas without a high percentage of foreclosures. I have seen this along the coast of South Carolina where prices on Myrtle Beach were down 30+% before smaller (and lower priced/many more cash buyers) vacation spots along the coast were showing much price deflation at all. They are catching up now and catching up fast...
FV
Posted by Noah
Wed Jan 27th, 2010 04:08 PM
Zero Hedge has interesting take on SEC new rule for Money Market funds and the 1-Month treasury note going negative
http://www.zerohedge.com/article/suspending-money-market-redemptions-now-legel-sec-approves-new-money-market-regulation-4-1-v
"Well, in a nearly unanimous vote, Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares." Too bad investors' hardships considerations ended up being completely irrelevant."
Interesting..Is there a rush from MM funds to short term T-Bills as a result of this SEC MM regulation?
Posted by anonymous
Wed Jan 27th, 2010 04:44 PM
If money markets were getting large redemptions, would they sell their most liquid assets including T-Bills? Could this counteract the buying?
Posted by In Debt We Trust
Wed Jan 27th, 2010 07:46 PM
Negative rates on notes looks like a contrarian indicator on your chart. The markets may rally sharply from here. Not necessarily in equities but in other plays like credit . . .most notably HY.
At no other time has funding been so cheap to acquire on whatever scale you want to use - Fed Funds, Libor, swaps, etc. All that easy money is going to have to go somewhere.
When will it stop? I wish I knew.
Posted by Noah
Wed Jan 27th, 2010 08:22 PM
IDWT - well it certainly did in March of 2009! Glad you pointed that out. In and of itself it makes one wonder why money though is rushing to safety of return OF money, as FairValue discusses. I wonder if something with Greece is in the pipeline.
Stocks may rally for a few days, but the next 3-4 weeks may not disappoint volatility wise.
Always looking to connect the dots, sometimes there are too many to connect we dont know which dot connects with what
Posted by jeff
Thu Jan 28th, 2010 07:18 AM
I think you put your finger on the issue with the new money market requirements. This is definitely a motivation for these fund managers to buy highly liquid US short-term notes. There is also some expectation that the Fed will begin to term out its debt sales and rely less on short-term funding. We saw how vulnerable the banks were when their was a bank credit panic - discussed heavily in yesaterday's Paulson testimony. Uncle Sam may be bolstering his finances vs. a potential sovereign debt panic in lights of the PIGS and Japan worries.
Posted by mh23
Thu Jan 28th, 2010 08:10 AM
Noah:
I think this move is directly related to the new SEC ruling that allows Money Markets to suspend redemptions if they so choose (source is zero hedge). That in and of itself is a frightening thought. Couple that with the proposed limitations on short selling and you get the sense that they are putting the pieces together to deal with the next leg down. I don't like mindless conspiracies, but there can be no doubt that a collapsing stock market creates all kinds of problems that the government wants to avoid (e.g. pension fund collapses, annuity problems, the market is the only place to create a "wealth effect").
I had a great few days going short, but now I am going to cover a few positions at a loss because I don't want to fight the fed or zirp again for a while. I am still long the EUO, and if we convincingly break through 1.40, I really believe we might test 1.37 in the near future. However, in this environment there are so many moving pieces that I think all investments have to be monitored very closely.
Posted by mh23
Thu Jan 28th, 2010 08:12 AM
Noah:
Sorry for the redundant post, I didn't read the posts just the text of your blog.
Posted by Noah
Thu Jan 28th, 2010 08:15 AM
mh23 - yes, I think I agree as noted in comment #4 above yesterday of that ZH piece on MMMF rule changes by SEC.
seems like that was the reason. Of course at first glance, the trader in me saw 1-month neg yields and started to worry a bit. Im holding my shorts as after many many tries and losses in 2009 before backing out for last 6 months, I got some minor but good entry points for fxp, eev, skf, and dxd...
going to hold those for a bit even if market rallies another 5-7% from here. my time these days is with clients, which my business (knock on wood) has been very good the last 3-5 months an new site dev (which is all coming together with beta site up and new design coming in pieces every week) - so that is where my real excitement is right now. Ugh, just want it done so I can launch it
Posted by Noah
Thu Jan 28th, 2010 08:17 AM
no worries mh23!! I figured that..keep on commenting!
Posted by mh23
Thu Jan 28th, 2010 09:17 AM
You make a good point. I Think I may hang in there a bit too, as the market does not look so good going into the open. Right now the only shorts I have are HOG, which had been working great as a day trade, but yesterday I put on a new position and have been holding. Also, I am ashamed to admit, I went short WFC, Wednesday at the close, neglecting to take into account Berkshire being listed on the s and p 500. Other than that, I had a good week shorting different names for the day and then closing out positions. I too have been trading FXP and it has been working, but again I have been moving in and out on a daily or bi-daily basis.
I am just going to keep my powder dry and stay long the EUO.
Good luck with your launch!
Posted by Noah
Thu Jan 28th, 2010 09:24 AM
thanks! and boy, do I miss trading..when I cant focus 110% on trading, it gets so difficult! I hate to admit myself, I think those days are over for me. Im downgraded to just an old trader that now plays a bit every now and then
so depressing
Posted by In Debt We Trust
Sat Jan 30th, 2010 10:27 AM
Well. I've been selling call spreads and buying put spreads on commodities like soymeal and sugar (March).
Is anyone watching the JPY/USD?
My broker has been warning of a brewing storm in the yen.
The following comments are ad-libbed from a conversation I had with him.
"The Yen has been extremely volatile as of late as uncertainty remains with economic recovery and political outlooks. The Japanese Government debt is facing threats of a credit downgrade.
We should also focus on the “carry trade”. In 2009 the USD fell victim to the carry trade and estimates are that there are over $2 trillion in USD via carry trade. Now in most times the Yen is the favored currency for the carry trade was the BOJ rate is 10 basis points, slightly higher than the USD interest rates of 0-25 basis points. Once there is speculation that the Fed is going to raise interest rates, the USD will appreciate versus the Japanese Yen.
Given the recent strength of the Yen, given the 112-113 level would provide ample opportunity to establish longer term puts with the Yen as the Japanese economy would be unable to support a Yen stronger than the 114 level. Remember, the Japanese GDP is dependant on exports, a strong Yen makes exports more expensive and hurts Japanese Businesses bottom lines. "
Posted by coach handbags
Thu Aug 12th, 2010 09:46 PM
Treasury sold $10Bln in 4-week bills yesterday with investors only getting their principal investment back in return. Considering where we came from, when fear changes investor attitudes from chasing risk to simply getting their initial investment in full back, it's worth watching as an anti-risk trade might be setting up. This also tells me investors absolutely expect the fed to maintain a ZIRP policy. With a ZIRP policy in place, we can't read too much into short term yields turning negative but it still is something worth watching for in the near term as a risk aversion trade.