Monday, August 24, 2009

Wall St's Bond Game

The primary dealers are happy campers after today's treasury auctions.

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:

Quick Take:

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:

Final Take:

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.


Fuzz said...

That was the quickest take ever.

Fuzz said...

Suddenly the quick take appeared from the mist.
I would name the 2 remaining classes in America the royals and the royally f'd. AKA the Banksters and the Untouchables.

Jeff said...


Thanks Fuzz

I meant to have a final take in their.

Just added it.

LOL either of those two terms will do.

CT-Hilltopper said...

Fuzz, I couldn't have put it better myself.

And the royals have the MSM to put their case before the sheeple, who are still largely comatose.

For instance, did you know that if you dare to complain about Goldman Sachs, that means that you're anti-Semetic? That's according to the "brain trusts" at CNBC.

Please! You'd be lucky to find half a brain amongst all of them!

All we, the "royally f'd" can do is write blogs, that we hope that people will read. Talking to them sure as hell hasn't done any good.

I've sure found out who my real friend are in all of this.

Jeff said...


You sound like you are getting more fired up by the day.

I see torches and pitchforks in your future.

I love it!

I think word is spreading and the anger is building.

Perhaps the sheeple will finally wake up!

Anonymous said...

Jeff, the sheeples already have torches in their hands. Apparently they thought the next casting for Survivor the reality show is on now.

getyourselfconnected said...

very interesting observation. I would wonder whom in their right mind is continuing to buy the bonds the primary dealers are "picking up on the cheap" and then selling them at a hogher price? Why would those buyers not just buy their stake at the lower price, just as the PD's do? Is that some kind of manifestation of a failed auction fear? If not, I really see no reason for this game to exist, who is getting the short end as the buyers? Interested in your ideas.

Jeff said...


Because the pd's get what's left over of the auctions when the other bidders are done buying. Sometimes that's 50% of the auction and they are able grab them cheap because they buy what's left of them. Before the auction closes . Treasures don't rise until the btc ratio is discovered. This rise is where rhe pd's make their spread.

getyourselfconnected said...

this is amazing to me.

Jeff said...

It is sick isn't it? Have a close family member that traded bonds for decades. They played the same game in the 70's during the last crisis.

The pd's are having a field day. There is plenty of demand for treasuries because investors are so scared. It easy to dump this paper once the auctions close.

Minton Mckarkquey said...

Do you think these guys read your post first and *then* acted? Are you helping the Ponzis, Jeff? Jeff?! :-)

Great stuff, as always. The more I see the indices climb, the more I think this mirrors the Great Depression graph in terms of severity and time. And the more scared I get.

Back to anecdotal unjustified evidence that nobody reports:

1. My newly-graduated and newly-indebted friends have to work at Cheesecake Factory and P F Chang's because nobody's hiring lawyers and doctors anymore.
2. In San Antonio, TX there are 100 teachers applying for each open job (which is better than here in CA where we're firing them), according to my mother-in-law who works there.
3. Many rental properties in CA offer "free credit checking" (if they even bother) and no-term leases. Which may not sound major to the rest of the country but this is the state where two years ago you'd need a $3000 deposit and 12-month lease for practically anything, and a credit score < 650 would have had you kicked out of the building.

On a separate note, I became a US Citizen last week, so at least I'm committed to making things better even if the Oligarchs are trying to enslave us! Thank God for blogs like this where we can take stock of things and take the country back.

-- MM

Tom said...

Hi jeff

Don't forget how much "profit" the banks where making in the first half of the decade before they needed to be saved. It is just incredulous.

Jeff said...



Now they use our taxpayer money to further enrich themselves...


johndaniels said...

wel done jeff, thanks for keeping tabs on the bond markets, its quite arcane to me.

I agree 100% with your sentiment on walll street, its all electronic trading and not based in any way on true fundamentals.

where is the traders DOW going? well, IMHO it cost capital to pump a market, yet can cost nothing to short it.

sure seems like a set up to me.

johndaniels said...

or savers and speculators..

nce they started lowing interest rates at the tail end of '07, it all went south. banks dont need savers anymore, because the reserve system is no longer employed. they just create money out of thin air.

savers were forced to close out their CD's and risk their money in the markets. low and behold, the DOW dropped over 50% right as rates dropped. coincidence? i dont think so.

therefore, it costs them money to pay interest on savings, yet there's no benefit.

they want that money at risk; they want to take away your equity and replace it with debt (i.e. cars for clunkers).

unfortunately, the government wants us in debt or dead; yet many people just dont get that.

Jeff said...


There was just a great intervies on CNBC(believe it or not) around your points.

They had an analyst on who wants to go back to the gold standard.

I plan on having it up tonight.

Great thoughts.

Peter said...

Very interesting post. Wow, it's hard to believe that bankers would do something like this. If it's true then they are ripping off our government and the taxpayers. Would those nice bankers ever do something so dishonest?

Here is a pretty interesting video from a black preacher up in Harlem who is no fan of BObama. His thesis is that the white people are going to rise up and he wants to be on their side.


SPECTRE of Deflation said...

Where is Old Hickory when you really need him?

Andrew Jackson: "Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."

jeff said...


We need a modern version of Andrew Jackson today!

We need someone to lead us out of this mess!

jeff said...


Thanks for the video.

Very interesting stuff.

Its going to be interesting to see how this plays out