30 Year Auction

by Larry Levin

Although the Treasury conducted another important (and massive) auction today that once again could be called "not-so-good," it was largely ignored. Uh-huh, the 30-YR auction fallout was bad enough for Rick Santelli to grade the results with an F.

Bloomberg said the following, "The last two auctions, both for long maturities, have been sloppy, first yesterday's 10-year auction and today's $13 billion 30-year auction (a reopening of the November issue). Both auctions posted long tails with high rate for today's auction, at 4.520 percent, nearly 5 basis points over the 1:00 bid. Coverage was moderate at 2.45. Money moved out of the Treasury market in reaction to the results."

"This was a mediocre auction where the yield needed to be tweaked a little on the high side to get it done," said William Larkin, a fixed-income portfolio manager in Salem, Massachusetts at Cabot Money Management, which manages $500 million. "It's an indication of what's to come in 2010. We expect a gradual uptick to higher yields."

Translation: The demand was too low therefore the government had to increase the yields in order to get rid of all of its IOUs. Rates are going up; it will be more expensive to borrow for anything - especially a home.

"As we are seeing, if foreign investors don't step into the bidding process, then the Street is not able to absorb the debt, so concessions make it now beneficial to start participating," said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities in New York.

The yield curve between the 2-YR & 30-YR is the steepest in history, which is fantastic for the banks. They get to borrow on the lower end of the curve (maybe 1 %?) and lend ABOVE the higher end of the curve. Well done Federal Reserve, the banksters are making a killing off the very folks who bailed them out.

What happens when the 10 & 30-YR are yielding north of 4.5% and 5.5% respectively? You can forget any housing rebound that's for sure. And what about commercial loans? You can forget that too, especially since they aren't requesting many loans now. Umm, does Starbuck's need to borrow to expand capacity? How about mall operators?

Aint happenin' now - not gonna happen then.



Previous Day's Trading Room Results:

Trade Date: 12/10/09

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


1) No "Secrets" trades were filled today.

2) Algorithm positions (3)

3) "Reading the Tape" positions (0) ...combined Secret's, Algo, & "Reading the Tape" total...-2.00



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