This may be the most relevant piece of information I looked at this a.m.. As some of you may have seen already I queried a colleague of mine about the possible return of bond vigilantes. That term was used for sellers of treasuries that were concerned about inflation. That term was resurrected over the weekend in Barrons as we saw a pretty good pull back in treasury prices as yield rose several basis points especially in the longer end. My associate noted the following:
On the “bond vigilantes” front, let’s be very clear that those guys don’t exist anymore. Let me put it to you this way – have you seen the “Lone Ranger” anywhere on TV recently? I rest my case. What we have now are macro overlays in hedge funds and a bunch of momentum players that can whip things around when they see the street offside – either too short or too long – but they’re very short-term oriented for the most part.
I note that the recent announcement of 2/5/7 year UST auctions is $19B less than the auction announcement just this past March for these maturities and is coming at a time when the Fed is back in as a major buyer. Don’t see any vigilantes willing to take a bullet for a stand in such a supply/demand differential. That’s my guess anyway.
This is a good point and as sensai noted it will be worth keeping an eye on the relative size of issuance moving forward.
Larger flows in 10's listed below:
| 10yr. | |||||
| Paper | B | 500 | TYZ125.5c | 0.08 | 12413/13.5 |
| Paper | B | 2,000 | TYZ126/126.5 c spread | 0.02 | 12411/11.5 |
| Paper | B | 3,000 | TYZ127.5c | 0.01 | 12410.5/11 |
| New Edge | S | 2,000 | TYZ125/TYF124c diagnols | 0.46 | 12424/24.5 |
| New Edge | S | 4,000 | TYZ125.5c | 0.05 | ^12422.5 and .23 |
| New Edge | B | 5,000 | TYZ125.5/126 c spread | 0.03 | 12420.5/21 |
| New Edge | S | 3,000 | TYZ125.5 strad | 1.00 | ^12422 |
| New Edge | S | 1,000 | TYZ125.5/127c1X2 | 0.09 | 12423/24 |
| New Edge | S | 1,000 | TYZ125/TYF124c diagnols | 0.46 | 12424/24.5 |
| New Edge | S | 3,000 | TYZ124p | 0.07 | ^12423 |
| Paper | S | 1,000 | TYZ127p | 2.09 to 2.07 | 12427/29 |
| Mann | S | 1,000 | TYZ124.5/125 p1X2 | 0.03 | 12424/25 |
| Paper | S | 3,000 | |||
| CCM | B | 2,000 | TYZ123.5p | 0.02 | 12427/28 |
| Paper | S | 2,000 | TYZ124/TYF121.5p diag | 0.17 | 12416/16.5 |
| CSFB | B | 8,000 | TYF125.5/126.5 c1X2 | 0.02 | 12424/24.5 |
| New Edge | S | 2,000 | TYF125.5/127c1X2 | 0.09 | 12424.5/25 |
| Paper | B | 1,000 | TYH120/128 combo | 0.11 | ^TYH12400 |
| Mann | B | 5,000 | TYZ125.5/126 s spread | 0.04 | 12426/26.5 |
| New Edge | S | 3,000 | TYF126.5c | 0.12 | ^12428.5 |
| 1st Op | S | 1,000 | TYF126/127 c spread | 0.11 | 12429.5/30 |
Hey, thanks for this piece of info on bond vigilantes and the lower auction sizes....i was long on the bond n ed curve but this take of yours make my conviction even stronger...thanks mate
Posted by: KTT | 11/23/2010 at 01:40 AM