What can I say folks. The TNX chart says it all in terms of what happened in the bond market today. Umm there is only one word I can think of: CHAOS!
Bonds collapsed once again as the pressures in the credit market continue to mount. Demand at today's 5 year bond auction was strong as investor's continue to clamor for debt at the short end of the yield curve:
"The five-year notes auctioned today were sold at a yield of 2.31 percent, compared with an average forecast of 2.335 percent by eight bond-trading firms surveyed by Bloomberg News before the 1 p.m. bidding deadline.
Indirect bidders, the class of investors that includes foreign central banks, bought 44.2 percent of the five-year notes, compared with an average of 32.4 percent in the last 10 auctions."
The strong indirect bidder(FCB's) demand on these shorter dated bonds is actually creating a panic on the long end as investor's begin to fear that demand for longer dated treasuries will dramtically fall off as a result. Both the 10 and 30 year sold off hard today as the bond market watched the FCB's continue to pile into shorter dated treasuries.
Fixed income investor's are panicked by this strong demand because they see the freight train of unprecented supply of new bond issuances heading right straight for them. As this train approaches, they realize that there is only so much demand/money to finance these sales.
So now they now have to ask themselves: With all of this buying on the short end, will there be any money/demand left to buy the long end thats coming out next week?
The huge treasury auction's next week are all long end 10's and 30's. The bond market is obviously asking themselves: Who in the hell is going to buy all of this worthless crap?
As a result, You saw a virtual panic in the bond market today. What's even more concerning here is the fact that we saw equities sell off at the same time that treasuries did.
Nowhere to Hide?
Kudo's to Karl Denninger for this great chart. If this doesn't say it all I don't know what does:
It doesn't get any uglier than this guys and girls. Where in the hell are you supposed to put your money as equities and bonds both sell off at the same time?
ANSWER: ITS MATTRESS TIME!
Sad but true. I would make sure that you hedge any treasury holding's that you have. You can do this by shorting TLT or by buying ticker TBT. If the long end treasury auctions blow up next week it could be lights out for the bond market. I wish I was kidding folks. Unfortunately, I am as serious as a heart attack.
The fact that the bond market is collapsing this early in the year is STUNNING to me. We still have trillions of $$$ in treasuries to sell throughout the rest of the year. Who in GOD'S NAME is going to buy it? I am starting to have doubts that we make it through the summer with out a bond dislocation/collapse.
What's also frightening was watching the MBS securities also sell off today. The spread between Fannie debt and treasuries has narrowed to razor thin margins. The bond sell off triggered a massive sell off in MBS because the spread got too narrowed.
This was the one area of the bond market that was still performing.
All in all folks, everyone sold everything today: STOCKS AND BONDS. Scary stuff.
Buy yourself an extra thick SEALY and tuck some money away. As for for the rest of your wealth thats in "digital dollars" via CD's/treasuries, stocks, and 401k accounts? Just hold onto them and pray that you can liquidate them into cash down the road if TSHTF.
The rise in mortgage/treasury yields are going to absolutely decimate whats left of the housing market because interest rates are going to SOAR.
We could very well see mortgage rates hit 6% by next week and no that's not a misprint. That's how bad treasuries have sold off.
How is anyone holding a $500-$750,000 McMansion going sell now as rates soar? They couldn't sell the damn thing with 4% rates. There is now a 40 month inventory for houses in this price range and this was BEFORE we saw the bond blowup this week!
Higher rates will be the final nail in the coffin for anyone selling in this price range. Housing in general is simply going to be destroyed by higher mortgage rates.
Obama, its time to IMMEDIATELY put the breaks on your spending binge or you risk destroying this nation economically.
THE BOND MARKET HAS SPOKEN: ARE YOU LISTENING?