Tuesday, June 9, 2015

The Pied Piper of Doom is still an idiot, US Tresuury market edition

 - by New Deal democrat 

After a very long hiatus, the Pied Piper of Doom is back, determined to maintain Daily Kos as a laughingstock of economic "analysis."  His latest bit of expertise is to trumpet, via Wolf Richter, that they US treasury market is imploding, because it has been manipulated, titled Is this why US Treasuries are diving?:

The global bond market swoon wiped out $1.2 trillion in value since April. Bonds with long maturities suffered the most. The 10-year Treasury Note Price Index lost 3.2%. The 30-year yield, at 3.1% currently, is still very low, but it’s the highest since October 2014. And the 30-year Treasury Bond Price Index has dropped 9%.....
There are numerous reasons for this scenario – a very benign scenario where the greatest credit bubble in history winds down gradually, in small steps with many ups and downs that give the “smart money” time to reposition, rather than suddenly and all at once.And today we learned of another reason.....
So how tempting would it be to manipulate this monster [US treasury] market? Very, apparently.
Turns out, the Department of Justice smells a rat in this until now pristine Treasury market, according to the New York Post ....And now that the probe by the DOJ has started some time ago, we can assume that a finely-honed flurry of activity has broken out at these banks ....In the process, Treasury prices, left to the vagaries of the markets, which have already been spooked by the Fed’s interest-rate cacophony and other factors, are beginning to swoon from their manipulated perch.
Now, mind you, as far as I can tell Wolf Richter is basically Some Guy on the West Coast, but let's pass that.  Last month I caught him cherry-picking trucking data, claiming that April trucking had "fallen again" from March, based on a misleading YoY comparison, despite a huge month-over-month gain shown in the actual data.
But to t he specific point.  Here is a graph of 10 year US Treasury yields over the last year:

As you can see, since their January bottom, and particularly since mid-April, they  have risen about 0.75%.

Evidence of unwinding manipulation?  Well, let's test that by comparing Treasuries with yields on 10 year UK gilts:
Oh, dear.  It appears someone neglected to tell the British that it was US Treasuries were being manipulated, not Gilts, since they fell even more than Treasuries, by 0.85%.

And how about those sternly upright Germans?  Here's their 10 year Bund:

Now the Germans really have a right to be frosted.  Despite the fact that the alleged manipulation was of US Treasuries, German bunds have unwound the most of all, rising about 0.90% just in the last month and a half! Much more than Treasuries, which only sold off by about 0.55% during that time.

So, what might account for these moves?  Well, let's look at the news from the last week in January.  Did anything interesting happen?

Well, first of all gas prices bottomed.  This marked the end of the big deflation scare, which had dominated the Doomers at the end of 2014.

Secondly, there was this little matter that on January 25, as the BBC reported,  "Anti-austerity Syriza wins election."  Since then, of course, there has been a prolonged version of the annual spring Eurocrisis. Here's the take one week ago from the Financial Times:
 Yields on U.S. Treasurys and German bunds hit 2015 highs on Wednesday, extending a recent government-bond selloff, after a wave of upbeat economic data highlighted the valuation concerns that have nagged investors for months.
Wednesday’s price decline is the latest sign that traders and portfolio managers are once again recalibrating their expectations for the major Western economies and financial markets, following an early-year brush with deflation fears that briefly sent yields on 10-year German debt within range of zero.

Now, the Pied Piper of Doom most likely will counter that he is merely a neutral, detached observer passing along an item of interest.  Why, he isn't endorsing those views in the slightest!  He reports, you decide.

So I am sure he will pass along the FT's take on matters, above.  Or maybe
Bloomberg's. Or a sample from Business Insider.  Just for examples.

Don't hold your breath.
From Bonddad:
The PPoD (tm) has been skirting the DK copyright policy forever and a day.  FYI: here's the guidance:
  1. Copying and pasting complete copyrighted articles without permission from the copyright holder is absolutely prohibited by both this site's policies and copyright laws. Copyright infringement can expose both you and the site's owners to financial liability. Just don't do it. And if you see someone else doing it, please politely ask them to edit their diary accordingly. This is a bannable offense.
  1. Limited copying within the bounds of the doctrine of "fair use" is permitted. A reasonable rule-of-thumb is that copying three paragraphs from a normal-length news article or editorial is acceptable. (This, however, is not a safe-harbor. If even three paragraphs seems like "too much," then copy less or nothing at all.) For more on fair use, please visit this site.
Yes, he always gets permission to post someone else's stuff.  But, he been doing this for YEARS.  Can't someone with his deep knowledge, capabilities and connections write an in-depth, well-researched and documented article on his own?  I guess not.  Finally, I would guess that because the editors of DK just love this guy to no end, the regularly let him ride up to the rules without any consequence.

My two cents, inflation adjusted.