I thought I would get a little more into detail about the bond game that I described on Friday because we saw a perfect example of it today.
I will use TNX(10 year) as the example because its the easiest way to see in a graph how the bond market manipulates the yields on treasuries. Let's take a look at Friday and today's TNX action:
The grey bar divides Friday and Monday's trading. As I described on Friday, the primary dealers and the bond market love to sell off treasuries a day or week before treasury auctions because they are able to pick up treasuries on the cheap during the auctions.
Once the auctions are completed with a strong bid to cover ratio(BTC), treasuries soar as the market breathes a sigh of relief that the auctions got done.
Like clockwork, the auctions of course went smoothly today:
This "old school" bond play worked like a charm today. Yields soared on Friday as the bond market prepared for the auctions which allowed the PD's to get sweet entry points on treasuries from a pricing standpoint. As you can see above, yields then collapsed and treasuries soared once the auctions were successfully completed.
The primary dealers will now sell off the bags of treasuries that they picked up on the cheap at a much higher price and make a sweet profit on the spread.
The reason I say the markets were gamed here is because there was no reason to see such volatility in yields over the last few days.
The moves in TNX are greatly exaggerated IMO versus what the market has done the past few days. For example: There was no sell off in the markets today so yields shouldn't have collapsed as violently as they did.
On the flip side, Friday's move was strong, but the violent sell off in treasuries was way overdone versus the up day in the market.
This is a classic example of Bond market manipulation. If you want to try and take advantage of Wall st's games via a trade, I would suggest shorting ticker TBT before the treasury auction results are announced if you see yields rise sharply the day before the auctions.
Many think that it's very bearish when the primary dealers get stuck with 50-60% of a treasury auction. Ummmm...Think again. They are making a fortune as long as the game above continues to work like a charm.
As long as the BTC ratios stay in strong, the bond market is a goldmine for the PD's. If they BTC's start to slip(like I eventually believe they will) then the PD's are going to be in deep trouble. Until then, all is good!
Meanwhile as Wall St makes a fortune on this collapse, Rome continues to burn as J6P continues to suffer as they lose their jobs and houses at a record pace.
U6 on unemployment is nearing 20% as the economic crisis continues to deepen. It was reported over the weekend that California has an official unemployment rate of 11.9%.
The Bottom Line
I personally find it disgusting that Wall St is making billions at a time when the taxpayer is stuck paying off the tab for their mistakes.
The fraud continues to roll on!
I mean think about the enormous bailouts that we have been stuck with as a result of Wall St's greed: AIG, Fannie, Freddie, TARP...Need I go on?
Why is Congress not forcing Wall St to use their massive profits to help payoff the trillions in debt that they stuck the taxpayer with? It's going to take us generations to pay this nightmare off.
I know I know....Keep Dreamin... Like that's ever going to happen. I can hardly wait to read about the billions of $$ in bonuses that Wall St will dole out to themselves at the end of the year as a result of their games.
It just goes to show you that Washington DC is bought and paid for by Wall St.
The pigmen get bailed out at the expense of the taxpayer and they then rape us again by using the TARP money to game the markets once more in order to pay themselves more billions. I never thought I would see such a thing in this country.
America is rapidly becoming a two class system: The Oligarchs and the Serfs.