Aggregated Awareness

From Rob Kirby via Financial Sense comes an excellent explanation on why a deluge of US Treasury Bond supply is met with even larger US Treasury Bond demand, and why quantitative easing (QE or Queasing) will ensure even larger US Treasury Bond demand or even lower US Treasury Bond yields.

It is this so called "Gorilla in the room", that is the Interest Rate Derivative market or IRSwap market, coupled with infinite liquidity from central banks, such as the US Fed, which ensures that the edifice of Interest Rate Derivatives controls the entire US Treasury yield curve and thus all yield curves, since the US Treasury yield curve is the basis for all others.

This is why the traditional bond market reaction of increasing bond yields in the face of an increase in bond supply is neutralised. Because the increased bond supply is met with an artificial, but exponential rise in bond demand via way of the in-built bond demand utilised in much of the trades within the US$170 Trillion 3-10 Year IRSwap market.

It is why looking at bond yields to determine whether there's any inflation or deflation on the horizon is a fools errand.

The more they print. The lower yields will go.

This is the opposite of what would be traditionally expected, but that is the game as it is currently played.

Excerpt: "...What this all means folks is that the much ballyhooed “flight to quality” and rush to buy U.S. Government bonds is really an elaborate hoax–ENGINEERED in the bowels of the Federal Reserve and executed on the trading desks of their proxies; the likes of Goldman Sachs, J.P. Morgan, B of A, Citibank and Morgan Stanley by creating ARTIFICIAL SCARCITY for U.S. Government debt.

So, if any of you are left wondering where the bond vigilantes have gone:

They have all lost their jobs. Long ago, the last of the true bond vigilantes sold bonds YEARS AGO–intuitively correct I would argue–not realizing that Goldman’s, J.P. Morgan’s et al Interest Rate Swap Books were “black holes” of stealth artificial demand. They lost their shirts along with their jobs.

Nowadays bond traders who have chosen to remain employed resemble lap-dogs and play the game the way their masters intend them to."

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