10 Year Auction

by Larry Levin

Hmm, something not-so-good happened with at the Treasury today. The 10-YR auction didn't go so well; making some nervous about tomorrow's 30-YR Bond auction.

Bloomberg said the following, "The monthly 10-year note auction proved weak, posting a soft bid-to-cover ratio of 2.62, down from last month's 2.81 despite a much lower auction size ($21 billion vs. $25 billion). The auction tailed badly with the high yield of 3.448 percent more than 4 basis points over the 1:00 bid. Money moved out of Treasuries following the results, results that will raise questions over tomorrow's $13 billion 30-year bond auction."

Since indirect bids were 34.9%, but were 49.3% in November and 47.3% in October, it seems like foreigners are slowly shutting out the US Treasury. Wow, will it continue?

I wonder if the newly announced "porkulus" spending bill is already affecting Treasury sales of IOUs? The president said something like "we must continue to spend our way back to recovery" when talking up the new spending. Uh-huh, like a drunk drinking himself sober? Moronic!

What's the end game when you spend so much you cannot borrow any longer? Greece. Greece is at the end of its rope and its bond yields are spiking. A sovereign default here, which would be the first major country in the European Union since WWII, would be a MASSIVE blow to numerous European banks.

"It's five minutes to midnight for Greece," said Willem Buiter, former Bank of England policy maker, in a Bloomberg Television interview today. "We could see our first EU 15 sovereign default since Germany had it in 1948. Default is not unavoidable, but unless there are radical fiscal actions, lasting cuts in spending and tax increases of at least 7 percent of GDP, the writing is on the wall."

I know, I know, Greece is not the USA but we are in the same predicament. Luckily we enjoy the world reserve currency status and can seemingly borrow forever. Perhaps better examples to Greece would be California, New York, Illinois, Florida, New Jersey, and many bankrupt cities such as New York City and Houston.

Sooner or later, the municipal bond market will be in the same situation as Greece: muni-bond yields will soar and more bailouts will be in the offing.



Previous Day's Trading Room Results:

Trade Date: 12/9/09

E-Mini S&P Trades*
(before fees and commissions):


1) Pivot (S1) buy @ 8:47am at 1086.50 = -1.25 & -1.25 (2 lot)

2) FT buy @ 10:34am at 1091.25 = -0.25 & b/e (2 lot)

3) VA sell @ 11:34am at 1090.00 = b/e (1 lot)

4) Algorithm positions (7)

5) "Reading the Tape" positions (13) ...combined Secret's, Algo, & "Reading the Tape" total...+6.50



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