We’re baffled anybody still looks to the U.S. bond market for signals of future economic activity, inflation, or even risk aversion.  Case in point is today’s 7-year bond auction, which CNBC’s Rick Santelli rated an eleven on a scale of ten, i.e., a slam dunk!

Go no further, however, than the chart below to see which maturities on the yield curve are the most repressed.  Prior to today’s auction, for example, the Fed owned 43 percent of all Treasury coupon securities maturing in 2019 and more than 50 percent in three of the seven issues maturing in that year.

Yesterday we caught PIMCO’s very bright and articulate Mohammad El –Erian promoting the “seven-year bucket” in an interview with CNBC,

…make sure you have some gold, some oil, and concentrate your bond exposure in the five to seven-year bucket.

Known for “Fed Surfing” or getting in front of, or riding along with, the U.S. central bank’s market interventions, don’t you think PIMCO likes the seven-year, in part,  because that is where Mr. Bernanke is camped out?   Front running the Fed has paid handsomely for many and we doubt it is fully dominated by macro views of inflation, economic growth,  Chinese hard landings, or risk aversion.

The information we divined from today’s successful bond auction?   Especially, in a maturity that has been gagged and bound by Fed intervention?   Absolutely nuttin’!

Finally, we view long-term Treasury interest rates as one of, if not, the most important price in the world.  Because of direct financial repression the information it now provides and the signal it sends, which is so important to capital allocation decisions,  has, at best, been severely distorted.  No wonder corporations are hoarding cash and reluctant to invest.

Click chart to enlarge and for better resolution.

Category: Federal Reserve, Fixed Income/Interest Rates

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “The Great Repression: Freedom of Speech in the Bond Market”

  1. mathman says:

    i see Timmah’s gettin’ his knickers in a twist over the debt ceiling already (via cryptogon):


    Debt doomsday may come sooner than expected

    “The federal government could hit the debt ceiling sooner than expected — and possibly around the November election — according to a report out Friday.

    Lawmakers on Capitol Hill had hoped that last summer’s deal to end the nasty fight over lifting the debt ceiling would ensure the issue wouldn’t resurface until at least 2013.”

  2. VennData says:

    The Fed’s on hold until “late 2014.”

    So July 2014 or Xmas 2014, either is a little while past The Chairman’s re’nomination date. Plenty of time for the economy to mend further and get his job back, unless any Republican wins. So consider the timing of this super low rate to be a gift to whOBAMAever will be the leader of the free world.

    Consider that any decision you made based on a 2% ten year to be wrong until then. Since we live in America, I’d come down on the side of things will be better. But who knows? Certainly not the people who’ve kept you out of equities these last three years. Funny, isn’t it how badly they want you out now?