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Re: Yield curve warning signs
Old 06-01-2005, 03:04 PM   #21
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Re: Yield curve warning signs

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Originally Posted by brewer12345
Foreign central banks and FNM are investors, traditional or not.* I think that Fannie really only crowds into the bond market when we go into refi booms.* AFAIK, we aren't in one at the moment.
Do you know where I can find numbers on who's buying the treasuries? My impression is that a lot of the buying is pretty mechanical. We buy a bunch of crap from China. China says "what the hell are we going to do with all these dollars?" and they give them back to us to buy our debt. There is no consideration about interest rate futures.

And I'm still unclear about how FNMA hedges their risk, but don't they basically buy treasuries whenever they sell an MBS? I'm sure it's not 1-1, but I think you only see them as a seller of treasuries during a refi boom because they have to sell treasuries to call their MBS's.
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Re: Yield curve warning signs
Old 06-01-2005, 03:09 PM   #22
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Re: Yield curve warning signs

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Originally Posted by wabmester
Let me see if I understand the underlying assumptions here. * Historically, bond demand has been driven by investors. * *So, when FI investors are bearish about the economy, the demand for longer-term debt drops, and they stay short-term. * *Is that the logic that supports inverted yield curves as a predictor of recessions?
Whatever the logic may or may not be, a flat yield curve knocks the crap out of carry-trades, and damages profitability at many banks and financial companies. So that might be an instrumental, rather than just correlative relationship.

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Re: Yield curve warning signs
Old 06-01-2005, 03:10 PM   #23
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Re: Yield curve warning signs

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Originally Posted by wabmester
Do you know where I can find numbers on who's buying the treasuries?* *My impression is that a lot of the buying is pretty mechanical.* *We buy a bunch of crap from China.* *China says "what the hell are we going to do with all these dollars?" and they give them back to us to buy our debt.* *There is no consideration about interest rate futures.

And I'm still unclear about how FNMA hedges their risk, but don't they basically buy treasuries whenever they sell an MBS?* * I'm sure it's not 1-1, but I think you only see them as a seller of treasuries during a refi boom because they have to sell treasuries to call their MBS's.
Maybe the Treasury keeps tabs on who the buyers are? *I don't know for sure.

I'm not sure how to describe this adequately without getting too technical, but Fannie does some buying of treasuries and treasury derivatives when a refi boom goes on. *The fixed rate loans Fannie makes leaves them short convexity (second derivative of bond prices with respect to rates). *By taking positions in treasury derivatives, they effectively buy back this convexity. *When they have to do it in massive size, they are big enough to move the treasury market (like back in '03). *If borrowers in the US didn't insist on 30 and 15 year fixed rate mortgages, it wouldn't be so much of a problem. *That is why this issue is unique to the US AFAIK.
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Re: Yield curve warning signs
Old 06-01-2005, 03:28 PM   #24
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Re: Yield curve warning signs

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Originally Posted by brewer12345
... leaves them short convexity (second derivative of bond prices with respect to rates).
Zzzzz. Thanks for trying, though.
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Re: Yield curve warning signs
Old 06-01-2005, 03:38 PM   #25
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Re: Yield curve warning signs

I suspect hedge funds have a bazillion leveraged $$$ in treasuries, but short a couple of them blowing up or melting down I don't know how you'd find out the extent of their involvement.
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Re: Yield curve warning signs
Old 06-01-2005, 03:41 PM   #26
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Re: Yield curve warning signs

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Originally Posted by ronin
I suspect hedge funds have a bazillion leveraged $$$ in treasuries, but short a couple of them blowing up or melting down I don't know how you'd find out the extent of their involvement.
http://www.treas.gov/tic/mfh.txt

'Caribbean Banking Centers'
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Re: Yield curve warning signs
Old 06-01-2005, 04:32 PM   #27
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Re: Yield curve warning signs



it flattened out some more today



And yes, the top one is a fake*
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Re: Yield curve warning signs
Old 06-01-2005, 05:07 PM   #28
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Re: Yield curve warning signs

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Originally Posted by Marshac
Thanks.* *I clicked around that site a bit, and I was able to calculate a couple percentages.

The treasury breaks down bond holders into several different classes.

In 1994, mutual funds and "other investors" held 18.4% of our debt, and foreign holders held 14.4%

In 2004, mutual funds and other investors held 7.2% of our debt, and foreign holders held 25.6%

So, the trend wasn't as dramatic as I thought, but it's pretty clear that the mix of treasury buyers has changed significantly, so that could affect how we interpret the signals from the bond market.
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Re: Yield curve warning signs
Old 06-01-2005, 05:10 PM   #29
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Re: Yield curve warning signs

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Originally Posted by Marshac
http://www.treas.gov/tic/mfh.txt

'Caribbean Banking Centers'
Oh wow! 3rd after mainland China. Add in some from the other row and we're talking some serious dough.
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Re: Yield curve warning signs
Old 06-01-2005, 05:17 PM   #30
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Re: Yield curve warning signs

So the Fed's now hinting that it's quarter point bumps are almost over, what say all on the stabalizing affect on the market this may have? I know the overnight rate doesn't directly correlate with long term, but we may avoid that inflection point.
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Re: Yield curve warning signs
Old 06-01-2005, 05:33 PM   #31
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Re: Yield curve warning signs

A failure to increase rates at a 'measured' pace could be interpreted as the feds acknowledging weakness (more than a 'soft patch') in the US economy. I'm really not sure how the market would react...* Even at 3%, should the need arise, the feds don't have much room in which to play....

Check out this chart showing UK rates vs the US rates-

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Re: Yield curve warning signs
Old 06-01-2005, 05:40 PM   #32
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Re: Yield curve warning signs

TH, I believe that some "very valuey" companies become even
more risky in recessionary times. *The conventional wisdom is to
flee to the "steady eddies" that provide essential services, food,
drugs, etc. *After all, the value premium exists because value stocks
are more risky and per Swedroe, "the risk is likely to show up in
times of economic distress". *This was particularly true in 1929-1932.
In mild recessions like the last one, value stocks do OK. *

OTOH, valuey stocks tend to do better in inflationary times since their
debt is devalued.

Swedroe points out that investors who are likely to see earned income
fall or disappear during a recession should limit their exposure to
value stocks. *Retirees without earned income have a greater
exposure to inflation and should consider a tilt to value since value
stocks provide better protection than growth stocks. *

So depending on your outlook for inflation or recession, you pay
your money and make your choice. *

Since none of us knows the future, the prudent thing is to diversify,
diversify, diversify.

Cheers,

Charlie
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Re: Yield curve warning signs
Old 06-01-2005, 05:41 PM   #33
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Re: Yield curve warning signs

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Originally Posted by ronin
Oh wow!* 3rd after mainland China.* Add in some from the other row and we're talking some serious dough.
And now time for a warm fuzzy- According to this data, every single one of us here (except for all you non-US folks) went $106 in the hole between feb and mar, increasing the amount 'you' owe to $6673... did you get your monies worth?

I'm sure we owe a lot more.... this is just the treasury securities after all....
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Re: Yield curve warning signs
Old 06-01-2005, 05:53 PM   #34
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Re: Yield curve warning signs

Charlie - you is right, although the meaning of 'very valuey' is going to be pretty different from person to person. I'm not as pokey as far as investment braveness as I sound sometimes...I might even go as high as paying a P/E of 15 for something really racy
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Re: Yield curve warning signs
Old 06-01-2005, 09:39 PM   #35
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Re: Yield curve warning signs

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Originally Posted by Laurence
So the Fed's now hinting that it's quarter point bumps are almost over
When did they hint about that? Last I read, they are talking about going to 4% by this winter before calling it quits for a while. That would be 4 more 25bp bumps I would think.
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Re: Yield curve warning signs
Old 06-01-2005, 09:58 PM   #36
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Re: Yield curve warning signs

Link

Quote:
The Institute for Supply Management said its index of national manufacturing activity fell to 51.4 in May from 53.3 in April, its lowest point in almost two years.

"The biggest leading indicator of the month is telling us that the economy may be heading south and fast," said Chris Rupkey, senior financial economist at Bank of Tokyo/Mitsubishi. "We look for the market to take another projected Fed rate hike off the table. A rate hike at the Fed's June policy meeting is in the cards still, but after that all bets are off."
So they raise it one more time to save face.. and then what? Any guesses what they will say to justify a cessation of rate increases? "Inflation is well contained" or some other nonsense?
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Re: Yield curve warning signs
Old 06-01-2005, 11:34 PM   #37
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Re: Yield curve warning signs

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Originally Posted by Marshac
Link

So they raise it one more time to save face.. and then what? Any guesses what they will say to justify a cessation of rate increases? "Inflation is well contained" or some other nonsense?
They will say they are in the "neutral zone." At 4%, the rate should not help or hurt the economy.

If the economy keeps picking up speed, you might see it going to 4.50% to 5%, and if a recession hits, they will drop down to 3 again. This is within the next 3 years.
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Re: Yield curve warning signs
Old 06-02-2005, 08:00 AM   #38
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Re: Yield curve warning signs

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...I would think that would eventually cause people to demand higher wages, thus causing inflation.
And here you go...

U.S. stock futures dip after data shows high labor costs
Thu Jun 2, 2005 08:40 AM ET

NEW YORK, June 2 (Reuters) - U.S. stock futures dipped on Thursday, pointing to a lower market open, after a government report said labor costs of production rose at a swift 3.3 percent annual rate -- well ahead of market expectations and fanning inflationary concerns.
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Re: Yield curve warning signs
Old 06-02-2005, 08:06 AM   #39
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Re: Yield curve warning signs

Still 80/20 8)
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Re: Yield curve warning signs
Old 06-06-2005, 09:31 AM   #40
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Re: Yield curve warning signs

30 year continues to flatten, now .29 between the 10 and 30 year bonds, down from .36 last week while the 3mo has gained .05

Any guesses if/when it will finally invert?

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