# This summer's big jump in bond yields



## james4beach (Nov 15, 2012)

You'll recall that in May through July, the U.S. Treasury bonds fell sharply in price -- which drove yields up by a lot. This had secondary effects of driving Canadian bond & mortgage yields up too, and it also affected interest rate sensitive investments such as REITs, utilities, and dividend paying stocks.

Analysts in the media have possible causes, such as possible Federal Reserve 'tapering', or a strengthening economy. This article points to a new one I had not heard before... the fact that the USA quietly hit its debt ceiling in May, and since then has basically been not updating their published Debt Totals.

U.S. Treasury has blown past debt limit; media is silent

quoting parts of it,



> *Treasury has stopped updating the Total*
> 
> The U.S. Treasury publishes a Daily Treasury Statement showing federal debt and the current totals. The “Total Public Debt Subject to Limit” has been stuck at $16,699,396,000,000 for 70 straight days. This number is exactly $25 million shy of the legal borrowing limit, and is clearly not being updated any more.
> . . .
> ...


----------



## humble_pie (Jun 7, 2009)

shall we hazard a guess as to who the great ponzi really is?


----------



## My Own Advisor (Sep 24, 2012)

From the article....

....."means that the Total Public Debt Subject to Limit is a fake number, and the U.S. Government has in fact exceeded the legal debt ceiling. They are still issuing new debt and just not updating the total. There are extraordinary measures in place now that apparently allow this to happen."

I suspect the debt will continue to spiral out of control until someone, the U.S. Government, gets called to pay some of this. 

I suspect this has to happen at some point, just who knows when, 1-year, 10-years, 30-years away?


----------



## HaroldCrump (Jun 10, 2009)

There is a debt ceiling debate coming up in the fall.
That is what the whole Obama speech from this week was all about - the jobs for tax breaks rhetoric.

The US treasury does have some room to manoever even once the debt ceiling has been hit.
They did that last Dec too.
They will run on fumes between now and the fall.


----------



## maxandrelax (Jul 11, 2012)

Is anyone shorting long bonds for the long term? TBT, TBF?


----------



## HaroldCrump (Jun 10, 2009)

That trade has probably already been made.
Tapering rumors and the rise in bond yields has been going on since mid May.
Also, keep in mind that you will be on the hook for the interest payment on the bond ETF that you short sell.


----------



## sags (May 15, 2010)

The buzz is that the Fed backed away from 'tapering" by signalling a change in their words on the state of the economy from a "moderate" to a "modest" recovery.

Isn't it something.................when investors are looking up dictionary meanings of words........to decide how to invest?


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> Isn't it something.................when investors are looking up dictionary meanings of words........to decide how to invest?


Those with PhDs in English can now get jobs writing the program code for the HFTs and trading quants.
I'm gonna look for my old copy of Nesfield's _English Grammar and Composition_ in my parents' attic.


----------



## james4beach (Nov 15, 2012)

I'm not suggesting shorting treasury bonds or anything, I was just surprised to learn they hit the debt ceiling and just stopped updating their debt count.

For 70 days!


----------



## andrewf (Mar 1, 2010)

Is tapering a $9 word now?


----------



## dogcom (May 23, 2009)

I have been saying for a long time, that the mainstream media that is owned by a few companies simply don't report the news anymore. In that I mean if the news might hurt the Fed, the elites they might protect or not to report just to keep their job. If a story does get out they will somehow delete it so when you go back you can't find the story anymore unless you look to the fringe media as james4beach has done here. Most people on the forum and in North America believe only what is published in the mainstream media so it works out well for those in power to get away with whatever they want.

If you look back to Watergate when the media did its job you saw Nixon go down. Today you can spy on everybody and cheat the constitution to all to your hearts desire and nobody in the mainstream media seems to care.


----------



## Spudd (Oct 11, 2011)

What about all the coverage on the Snowden thing?


----------



## dogcom (May 23, 2009)

There was no choice on Snowden they had to cover it. There are times when they must cover and I am sure there are times they that they feel they must allow information out but it will be on their time table.


----------



## HaroldCrump (Jun 10, 2009)

The debt ceiling battle in Congress has already begun.

_A battle in Congress expected this fall over the budget and a potential government shutdown broke out early on Thursday as Republicans in the Senate effectively killed a $54 billion spending bill for transportation and housing projects._

http://www.reuters.com/article/2013/08/02/us-usa-fiscal-transport-idUSBRE9701GP20130802

I don't know why that website posted above thinks no one noticed...it has been in the media for a while.


----------



## humble_pie (Jun 7, 2009)

My Own Advisor said:


> From the article....



advisor why are we calling it an article?

imho it's a self-written piece of standard james4 propaganda. It's his own language signature. His theme. His swan song. The world is ending.

quoting oneself in posts in order to inflate & make more pompous one's own views is just a little bit tacky, don't u think?


----------



## andrewf (Mar 1, 2010)

/snark


----------



## humble_pie (Jun 7, 2009)

nothing snark whatsoever

i profoundly respect the professional standards & guidelines that every good journalist & editor follows
i follow those standards myself
i question frequent manipulation & false self-quoting
this is at least the 3rd inflated ponzi "article"
like any other journo, i'll expose a fake story that is standing up & screaming loudly about itself


----------



## andrewf (Mar 1, 2010)

Seems ad hominem to me. Can't you critique what he says?

I don't agree with james about many things, and I doubt I would agree with much on a website called 'greatponzi', but it seems like you're just attacking the person.


----------



## humble_pie (Jun 7, 2009)

not ad hominem in the least

what i'm critiquing is the repeated behaviour of falsely quoting one's own website in an attempt to inflate one's own writings into an authoritative piece of journalism.

this is a fair critique. Behaviour like this is far outside every standard of canadian editing & publishing. Journalism is a reputable profession adhering to time-honoured guidelines at all times.

writers may not plagiarize. Writers may not falsely quote themselves. Writers may not cheat or manipulate their readers.


----------



## HaroldCrump (Jun 10, 2009)

If we consider just the page/article in question linked above, it is hardly a case of superb investigative journalism that deserves a thread of its own.
I don't find it newsworthy at all.

Mainstream media has indeed been reporting this for several weeks now.
dogcom spoke of fringe media etc. but we have evidence that even the mainstream media has been reporting this dutifully.

Also, I find that many of the statements in that piece are worded to be shocking and revealing, but I find them to be routine. Such as,

_More importantly, the latter source shows that the U.S. Treasury has issued *new net debt *in this time period._ - The Treasury is issuing net new debt all the time. Right now, the US Treasury is issuing net new debt to service existing debt. And the Fed is buying up most of that new debt. This has become a spiral. This fact is well known.

_This means that the Total Public Debt Subject to Limit is a fake number_ - You don't say ! Get away ! :rolleyes2:
Seriously, what else is new?
The US Total Debt is being under-reported since the 1990s.

_There has been a lot of head scratching about why the 10 year bond yield jumped from 1.7% to 2.7% in just two months_ - There is no "head scratching". It is evident and obvious to those that follow markets on a routine basis why this is happening.

_the U.S. Government has in fact exceeded the legal debt ceiling_ - They have done so in the past.
The Govt. has a little head room without cutting services i.e. stop paying full time employees.
There is enough runway left until the debate in the Fall.
I don't know the exact date they run out of options, but it's been the same way since the first big debt ceiling debate in the summer of 2011.


----------



## james4beach (Nov 15, 2012)

I've lost track of the accusations here, what's the problem exactly?

Is the article wrong, did they _not_ hit the debt ceiling and then just hard-code the Total Debt number?


----------



## HaroldCrump (Jun 10, 2009)

james4beach said:


> I've lost track of the accusations here, what's the problem exactly?
> Is the article wrong, did they _not_ hit the debt ceiling and then just hard-code the Total Debt number?


Speaking for myself, the only issue I take to the article linked in the original post is that I disagree that the media has been silent about it, and I disagree that folks have been "head scratching" about the rise in bond yields.
To me, there is no scoop in this article.

Also, certain statements are presented in the article in such as way as if this were unprecedented, unique, and secretive manipulation.
I state that it is none of those - all these actions by the US Treasury are common, banal, and well known in the media.

Yeah, perhaps they haven't updated the debt clock number, but most investors stopped counting after $50 Trillion.


----------



## james4beach (Nov 15, 2012)

HaroldCrump said:


> Speaking for myself, the only issue I take to the article linked in the original post is that I disagree that the media has been silent about it, and I disagree that folks have been "head scratching" about the rise in bond yields.
> To me, there is no scoop in this article.
> 
> Also, certain statements are presented in the article in such as way as if this were unprecedented, unique, and secretive manipulation.
> ...


Sound like fair criticisms to me and greatponzi (like zerohedge) definitely leans towards the alarmist side. But like zerohedge, there are also occasional excellent novel pieces of info.

Personally I didn't know this was already common knowledge (hitting the debt ceiling). For instance in all the TV coverage I saw about the rise in bond yields, I don't recall anyone talking about hitting the debt ceiling. Perhaps I just missed that commentary, I just don't recall hearing it. So to me what I read here seemed novel because I had not heard these two issues (bond yields and debt ceiling) tied before.


----------



## humble_pie (Jun 7, 2009)

i'm planning to invent a batshit website named cottleston_pie

i'll post up poems, songs, rants about FX fees & option strategies

then i'll come back here & quote myself
i'll tell folks that my quotes are "excellent" & "novel" tidbits of "info"

i bet i'll become as famous as dan ivandjiiski tyler durden zerohedge para noia will destroia


----------



## james4beach (Nov 15, 2012)

humble_pie said:


> i'm planning to invent a batshit website named cottleston_pie
> 
> i'll post up poems, songs, rants about FX fees & option strategies


Great idea I'll get you started with a poem!


There once was a man from this web site
Who invested and traded all night.
He leveraged his stocks,
Assumed no market shocks,
Ne'er had we seen such a plight!


----------



## Retired Peasant (Apr 22, 2013)

humble_pie said:


> shall we hazard a guess as to who the great ponzi really is?





humble_pie said:


> i'm planning to invent a batshit website named cottleston_pie
> 
> i'll post up poems, songs, rants about FX fees & option strategies
> 
> then i'll come back here & quote myself


I take it you think James is behind the great ponzi website. Do you have proof?


----------



## andrewf (Mar 1, 2010)

Accusations are enough....:rolleyes2:


----------



## sags (May 15, 2010)

I read the old debt clock is nothing.........to what it would be if it included off the books debt.

Social Security, Medicare and such..............

In December 2011........the total was 86 Trillion........give or take........... 550% of GDP.

Probably a whole lot more since then.........and they still have to bail out Detroit.....lol.

http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html

The US finances aren't a ponzi scheme........as that would require new outside cash.

They are just making up money to finance their own debt.

It is pure "fantasy land".


----------



## andrewf (Mar 1, 2010)

sags, that's somewhat faulty accounting. Including medicare liabilities but excluding the present value of tax revenues. Did you know that Walmart has liabilities of several trillion dollars over the next decade? SELL SELL SELL!


----------



## HaroldCrump (Jun 10, 2009)

James4Beach, as you can see the media has been dutifully reporting the progression of US debt and deficit.
From this morning:

_The federal government posted a budget deficit of $97.6 billion in July, a rise from the same month ago, though a rise in tax receipts may make the annual budget gap the smallest in five years. 
In July, the government spent $297.6 billion and took in $200 billion in revenue._

http://www.marketwatch.com/story/us-posts-976-billion-july-budget-deficit-2013-08-12?link=MW_pulse


----------



## james4beach (Nov 15, 2012)

You're right, media is reporting it.

That's good news. I guess the efficient market will now ensure that things that happen in September-October won't be a surprise and thus there will be no increased volatility this autumn.


----------



## james4beach (Nov 15, 2012)

Revisiting this story. Quick reminder: the US hit its legal debt ceiling back in May and would normally not be allowed to keep borrowing (i.e. issuing new debt) since then.

To get around this crisis, and to continue issuing new debt, the US government put in place "extraordinary measures" that effectively allows the Treasury to sweep under the rug some of their borrowing activity and not count borrowing towards the "total debt" subject to the debt limit.

From May until today, the US Treasury has been operating with these "extraordinary measures" to get around the legal debt ceiling limitation.

The head of the US Treasury says the money will run out by October 17

I don't think this is just political posturing. I really think the USA is getting rather close to a technical default. Realistically, I don't think they would miss a coupon or principal payment but they are getting close to a default situation.

Further credit downgrades of the USA are possible.


----------



## atrp2biz (Sep 22, 2010)

The debt ceiling is old new news. See page 4 of link below. 

On another note, they will never miss a coupon payment because they can just issue more bonds, and where does the money come from to buy the bond? Hello QE.


http://assets.opencrs.com/rpts/RL31967_20100128.pdf


----------



## james4beach (Nov 15, 2012)

You realize even the head of the Treasury himself is saying quite explicitly that the USA might default, right? This isn't exactly conspiracy theory. The government has many obligations to pay out cash and bond coupons are just one of them.

From the article:


> In the letter, Mr. Lew said Republican proposals to "prioritize" Treasury's payments after this time, such as by making interest payments to bondholders before making other payments, is "simply default by another name."


----------



## atrp2biz (Sep 22, 2010)

What I realize is that as a democrat, Mr. Lew's statement is very partisan.


----------



## james4beach (Nov 15, 2012)

I disagree on that one. He's head of the US Treasury and it's not good for his career -- or any of his future careers -- to warn of Treasury default if there really is no such danger.

It's not worth it for him, if he's just trying to make a big stink and embarrass Republicans. To me that doesn't make sense.

I believe him when he says the Treasury is in danger of defaulting. This is the second public letter of this nature he has released. This way if it happens he can say, hey I did my job 100% correctly, I even said this was en route to happening.


----------



## atrp2biz (Sep 22, 2010)

Hey, I would love for this to happen as I am fairly long gold, but neither party wants to be the one that doesn't allow the debt ceiling to be raised--therefore it will be raised and the issue will be moot not unlike the previous dozens of times in the past. The debt ceiling is always a story when it comes up and it always comes and goes.


----------



## james4beach (Nov 15, 2012)

True but each time it happens and especially when it's down to the wire, this chips away at confidence in the USA as a worthy borrower.

You don't lose that kind of confidence overnight. It takes years of this, maybe a decade -- until foreign lenders say, to hell with this, instead of going through this drama and worrying about my securities I'll just buy something else instead of USTs

It's a practical issue for me as someone who manages bond portfolios. Should I buy US government bonds or Canadian government bonds? Well the 10 year bonds have virtually the same yield. But with the USA, I have to be mildly worried they're going to default and get downgraded.

So I never buy US treasury bonds; only Canadian. And all those other bond buyers also have choices for things to do with their money besides US Treasuries. Why put up with this garbage when they don't have to?


----------



## atrp2biz (Sep 22, 2010)

So if foreign lenders stop buying treasuries, what happens? Yields go up. This is exactly what the Federal Reserve does not want to happen so they continue QE and grow their balance sheet. It's not very hard for the Fed to do this and they will continue to do this to avoid default. What this means is that the USD depreciates and tangible assets like commodities appreciate relative to the dollar.


----------



## james4beach (Nov 15, 2012)

The Treasury department is saying that they can not legally issue new debt and thus will run out of cash in 3 weeks or less.

For the Fed to use QE to buy up the debt, the Treasury first has to issue the bond. The Treasury can't issue that bond right now... that's why they have a problem.

So no matter how badly the Fed wants to buy that bond, and no matter how badly the Treasury wished them to do so, they can not proceed until the Treasury is permitted by law to issue more debt. This is a bureaucratic issue. The Treasury needs permission to do this. See what I'm getting at? Right now they don't have permission. Right now, the Federal Reserve can't solve this problem.


----------



## atrp2biz (Sep 22, 2010)

Sigh. See post 4 up.

Also, no President will allow the US to default under their watch, so they will take executive action if necessary.


----------



## james4beach (Nov 15, 2012)

It just sounds to me like that argument (I used to hear it a lot) that a crash & deflation could never happen in 2008, because it would be such a horrible thing nobody wants to happen, therefore everything would be done to prevent it and therefore it wouldn't occur.

Or the argument that Fannie Mae (government agency) couldn't possibly default, because it would be a disaster and look horrible for the government, thus both parties would prevent it from happening and therefore Fannie Mae can't collapse and default.

And here you're saying that the USA won't possibly default, because it's so horrible, that the parties will work together to make sure it doesn't happen and therefore it can't happen.


----------



## atrp2biz (Sep 22, 2010)

Who made the first two statements? Those sound pretty generic.

If lawmakers and the Fed (as the Treasury buyer of last resort) work together, there is no reason for default. Might be a reason why Summers jumped out of the race.


----------

