Pelosi’s Famous Chili? US 30-year T-bond Auction Nets Only 50% Bidder Participation (FAIL!)

Foreign investors are seemingly NOT seeking safety with the 30-year US Treasury bond if the auction today is any indication.

The 30-year Treasury auction saw a decline in bidder participation, largely due to the absence of foreign interest.


The 30-year Treasury price declined and the yield jumped.


Could this be a sign of foreign investors finally sick of US uncontrolled spending and deficits? Since the US House of Representatives holds the purse strings of the Federal government, is this Speaker Pelosi’s famous chili?


Despite “Strong” US Jobs Report, Fed Rate Cut Still Likely (Interest Rate Volatility Cube Still Spiked At Short End)

Despite Friday’s “strong” job report of 224,000 jobs added to the US economy and speculation that The Federal Reserve may actually NOT cuts rates at the next FOMC meeting, The Fed Funds futures market is still signaling an upcoming rate cut.


And the expected path of Fed rate cuts (orange dashed line) is still downward sloping,


The US dollar swaps curve, the OIS curve and the swaps SPREAD curve are all sagging at the short-end.


The interest rate volatility cube is still spiked at the short end (according to swaptions).


Let’s see if things change by Monday afternoon (my class meets at 4:30 PM EST).

Fed Chair Powell may have more free time to socialize if Trump has his way!!



US Treasury And Swap Curves Remain Sagging, Europe Sagging Too (Except Italy)

Apparently, the sags are here to stay.

The US Treasury Actives curve (green) is downward sloping until 3 years, then upward sloping after 3 years. The US dollar swaps curve (blue) is downward sloping until 1 year, then double dips at 4 years before rising again. The overnight indexed swap rate (red) is downward sloping until 4 years then rises. This is called “the sag.”


But US markets are not the only one sagging. In Europe, the majors Germany (blue), France (green) and the UK (purple) sovereign curves are all sagging, with the exception of Italy (red).


(Bloomberg) — Italian bonds led a European rally as hints of fresh stimulus from policy makers outweighed the impact of easing global trade tensions.

The securities surged Monday to send benchmark yields below 2% for the first time since May 2018, while German bund yields hit a fresh record low. European Central Bank officials gave signals that action may be on its way in an effort to revive the region’s inflation, while investors in Italy are growing confident Rome will avoid punishment from the European Union over its budget.



Volatility Numbness As Central Banks Keep QE’ing

There are three prominent measures of volatility: VIX for the S&P 500 index, TYVIX for the 10-year Treasury Note, and MOVE (Ml Option Volatility Estimate Index). All three show an interesting pattern. The stable volatility patterns prior to the massive Fed intervention starting in Q4 2007. That never ended.


Here is the massive Fed intervention and the US Treasury 10Y-3M curve.


Nothing has been the same since the Q4 Fed (and other central bank) intervention to fight The Great Recession.


And we are back to rate cutting (according to Fed Funds Futures data) despite the jawboning (or “Talk-talk” from Fed members).


The expected path of interest rates (orange line) looks like a Viking ship.