Big Jump in Foreign Buyers at Latest Treasury Auction Is a ‘Hint’

Discussion in 'Wall St. News' started by dealmaker, Aug 25, 2016.

  1. dealmaker

    dealmaker

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    • August 24, 2016, 2:56 P.M. ET
    Big Jump in Foreign Buyers at Latest Treasury Auction Is a ‘Hint’
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    By Amey Stone
    Wednesday’s Treasury auction of five-year notes went well thanks to record demand from indirect bidders, mostly foreign central banks.

    The successful auction plus the strong foreign buying from foreign central banks suggests the Fed won’t hike rates soon, strategists say.

    Mark Grant of Hilltop Securities headlined his report “Hint, Hint,” writing:

    Now, as we all know, the central banks speak to each other and the conversation is not passed about to the Press. I think there is a very large Hint here. If the Fed was going to raise rates, my take is that the central bank demand would be minuscule. Conversely, if the Fed was not going to raise rates then the central banks would be in with both barrels. Consider the central bank participation in the five year auction. There is the Hint!

    Peter Boockvar of The Lindsey Group concurred on the big takeaway from the autction, writing to clients:

    The market doesn’t believe the Fed is raising interest rates in September, that much is obvious. The odds by year end are exactly at 50% so go flip that coin.

    The two-year note auction Tuesday also was strong, but more for the participation of direct bidders.

    Thomas Byrne of Wealth Strategies & Management notes that while the strong foreign buying suggests central banks don’t think the Fed will raise rates, it also has a lot to do with the inner workings of quantitative easing policies. He tells Barron’s:

    Instead of buying more of their own sovereign debt, at negative yields, foreign central banks by more U.S. Treasuries. To accomplish this, central banks exchange their currencies for U.S. dollars. This should have a similar effect on currencies as pushing down one’s own yields. Foreign buying of U.S. Treasuries as all about QE and there is no end in sight. I too do not see a Fed hike before December, if then.
     
  2. dealmaker

    dealmaker

    McCullough: Here's What Happens If The Fed Raises Rates

     
  3. Overnight

    Overnight

    Ever hear of the butterfly effect?

    It ain't over until it is over.
     
  4. nitro

    nitro

    I am confused by this. ALmost everything that I have seen said the auction for the 7-Year on Thursday went terribly, using metrics like bid-to-cover etc compared to similar auctions going back to 2012 it hasn't been that bad in years. Why would that be much different than the 5-Year on Wednesday?

    I wonder how this woman got her information? I hate it when people make statements without giving the stats.

     
  5. dealmaker

    dealmaker

  6. You shouldn't look at bid-to-cover for these... Still it's true that the 7y was a bit weaker than the 5y from the day before, but it wasn't really all that bad. It probably was just too close to Yellen's JH speech for people to bid enthusiastically.
     
  7. nitro

    nitro

    What is the recommended thing to look at on these?
     
  8. In theory, there are all sorts of stats that you could try and interpret, like the proportion of "direct" bids, etc. However, the only thing that really matters is the "tail", i.e. the difference between the auction yield and the yield prevailing just prior.
     
  9. nitro

    nitro

    I see. Is there a website/feed (other than Bloomberg) that disseminates that information?
     
  10. I dunno of any, tbh... In general, if you have access to a basic trading platform which allows you to see where treasuries are trading (ideally including the "when issued" bonds), you can do this yourself.
     
    #10     Aug 26, 2016