Lost in translation: Santelli on bonds

Discussion in 'Financial Futures' started by Kicking, Dec 9, 2008.

  1. I don't know very much about the mechanics of bond trading (the underlying) and don't always follow what 's Santelli is saying (the guy speaks fast too and I am distracted by his hand signals).
    Today he said there was negative yield on the last treasury bill auction if I got that right. Healso said we were going to see negative yield in other T bills issuances. That means they pay the US govt to park money in bills right ? How does this happen technically in the auction process, is this a dutch auction process whereby I believe everyone gets the same price which is the best price for the issuer regardless of their bid? I can't see how someone would pay to get treasuries, although in this environment anything goes.

    Also I keep hearing TIPS are great value now, because they are pricing deflation and there would have to be big deflation for you to lose money in TIPS. The principal increases with inflation I understand, so I guess it decreases with deflation. Why are they good value and are TIPS great value only if you expect deflation not to happen and expect instead normal or out of control inflation ?
  2. people pay for negative yield because treasuries are the equivalent of cash to large large people. i mean who are you going to trust with 100 bil cash these days? citigroup? no they pay for the safety of having the us gov be their short-term bank. on an accounting statement short-term treasuries are the equivalent of cash for them.
  3. Yea, thats it, park your money in the 3 year t bill and lose 25 dollars per thousand.

    Who can you trust but Uncle Sam to make sheeople believe that T-bills are protecting your wealth.

    T-bills have not traded negitive since their inception in 1929.

    Your better off taking risk now adays, at least if it works out the return is worth it.

    Only the sheeople are sticking their money in socks/Tbills/ etc for safty. By the time the storm passes, they will be down 30% without taking any risk.

    If you have the money, its time to put it to work and take risk.
  4. yeah i tend to agree with that.But the market is saying otherwise for now on the bond side at least. What's yout take on this humongous rally in bonds ?

    I think there is a lot of short covering (the jIM rOGERS OF THE WOLRD are getting killed), trend following and buying on Bernanke's comments (shut that guy up !!) . That and the VIx stubbornly staying where it is drive me crazy.
  5. dhpar


    i don't get this at all. why people do not keep cash? what is wrong with cash on balance sheet? something stinks here...
  6. Or put another way - people are willing to lose a little in an environment where they believe their peers may be losing a lot as their relative financial strength goes up even if the dollar amounts go down in absolute terms.

    Assuming these people aren't morons, this is obviously extremely deflationary.
  7. 100 mill in cash is not only difficult to keep under your mattress, but also a bit worrisome.
  8. And lumpy. Makes it hard to sleep :D
  9. Actually T-Bills were auctioned off at zero and traded negative in the secondary market. The last time they traded negative was in the late 30's and early 40's according to Horner and Sylla in their book, "A History of Interest Rates." Good read, if you can find it.

  10. dhpar


    nobody says it needs to be under the mattress. it can be kept in the central bank (e.g. fed will pay you even o/n interest on it).

    of course not everybody can keep reserves at a central bank but my understanding is that majority of t-bills were taken away by dealers + indirect bidders (central banks themselves).
    #10     Dec 9, 2008