This page is created to monitor the Money Zero Maturity Velocity (MZM velocity) Vs. 10 Year U.S. Treasuries.
Historically, both are correlated. If money velocity picks up (blue chart), 10 Year U.S. Treasury Yields will rise (red chart).
Showing posts with label treasuries. Show all posts
Showing posts with label treasuries. Show all posts
Saturday, 20 April 2013
Friday, 18 January 2013
I always thought by myself, how come the COT site doesn't give current charts and current tables here. I mean, those numbers are 2 months old... Because of that, I didn't have current information. But we have a breakthrough here.
Thanks to Dieuwer from Seekingalpha, who pointed out I make a lot of mistakes, I now have a very interesting site to share. Namely: http://www.cotpricecharts.com/commitmentscurrent/
On that site, the two most important ones for me are the one for silver/gold and the other for 10 year bonds.
Gold: http://snalaska.com/cot/current/charts/GC.png
Silver: http://snalaska.com/cot/current/charts/SI.png
10 year bonds: http://snalaska.com/cot/current/charts/TY.png
Let's talk about the silver one first. Chart 1 gives us immediately the commercial interest. And we see that today the commercials are pretty short silver. That means that silver will be weak at this time.
Once the commercials start to become long again (purple chart goes up), like in July of 2012, then you need to start buying silver. And indeed, when you look at the silver price in July 2012, it bottomed out. So this COT site, is a must, to monitor each week.
As for the 10 year bonds, Chart 3 gives us an idea what the commercials are doing now. They have gone long just recently. You can see the purple chart has gone positive the previous week. How to read this chart? When the purple chart is very positive, with many commercials buying bonds, like in April 2012, then you should buy bonds. When commercials are short, like in October-December 2012, you should sell bonds.
And it works like candy...
It's like Dieuwer has just put money in my pocket with these charts!
Thanks to Dieuwer from Seekingalpha, who pointed out I make a lot of mistakes, I now have a very interesting site to share. Namely: http://www.cotpricecharts.com/commitmentscurrent/
On that site, the two most important ones for me are the one for silver/gold and the other for 10 year bonds.
Gold: http://snalaska.com/cot/current/charts/GC.png
Silver: http://snalaska.com/cot/current/charts/SI.png
10 year bonds: http://snalaska.com/cot/current/charts/TY.png
Let's talk about the silver one first. Chart 1 gives us immediately the commercial interest. And we see that today the commercials are pretty short silver. That means that silver will be weak at this time.
Once the commercials start to become long again (purple chart goes up), like in July of 2012, then you need to start buying silver. And indeed, when you look at the silver price in July 2012, it bottomed out. So this COT site, is a must, to monitor each week.
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| Chart 1: Silver Open Interest |
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| Chart 2: Silver price |
And it works like candy...
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| Chart 3: 10 Year Treasuries Open Interest |
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| Chart 4: 10 Year Treasury Yields |
Thursday, 17 January 2013
I just wanted to give an update on the status of the U.S. treasury market. I warned about a bond bubble here, stating that short interest in the commercials was going up dramatically. The last months we have seen weakness in the bond market as a result, but if you think it's already over, I have to disappoint you.
The bond bubble collapse hasn't even started yet. On Chart 1 we can see that since that article, the net short positions for the commercials has even gone up (pointing to a weak bond market and a bottoming out of yields), and the non-commercials have kept buying more and more bonds, thinking it would be a good investment. If these non-commercials unwind their long positions, we will start to see the real bond bubble collapse.
Even though non-commercials are buying like crazy, the yields haven't gone down. On Chart 2 we see that yields have risen even when long positions in non-commercials went up. This is not a normal event.
To find out more, go here.
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| Chart 1: Commercial Open Interest in Treasury Notes |
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| Chart 2: 10 year U.S. bond yields |
Wednesday, 16 January 2013
I had expected that China wouldn't buy as much U.S. treasuries in November 2012 because they bought a lot of gold (62 tonnes or $3.2 billion). But they did increase their U.S. treasuries by $200 million to $1.17 trillion.
Though, I think that China hasn't bought a lot of treasuries in December 2012 as yields were rising that month. But no worries, Japan is going to buy all the leftovers from China. Japan is almost overtaking China with its $1.133 trillion in U.S. treasuries, supposedly to devalue the yen to increase exports.
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| Chart 1: China U.S. treasury holdings |
Thursday, 3 January 2013
U.S. bonds have finally broken down and from here on it's only going downwards as resistance is broken.
If the Federal Reserve really were to stop buying U.S. bonds, bond yields would spike, mortgage rates would spike. The debt burden would increase tremendously with higher yields, which will bring interest payments much higher. If interest payments go higher, the budget deficit will increase when social security, defense, health care, education and pension spending isn't cut. Higher budget deficits asks for higher taxes to reign in the budget deficits and that will make stocks decline. That would lead to a start of a depression era.
You would think that the U.S. dollar would strengthen, but how can a currency strengthen with an exponentially higher debt burden and higher interest payments? It can't. First, the bond holders need to lose big before a recovery can even start. The only true safe haven will be precious metals.
The funny thing is that Ben Bernanke has shot himself in the foot by telling everyone he's going to stop buying bonds at the end of 2013. The result, everyone flees U.S. bonds today. I guess Jim Rogers' call for a collapse in bonds was a hit right on the head of the nail.
The even odder thing we saw today is that the U.S. dollar went up 1% against the euro which is very contradictory. Normally the U.S. dollar goes down when the bond market goes down as seen in this correlation. So I think this is a temporary phenomenon. U.S. dollar strength won't last long with a weak bond market. Max Keiser is even predicting the end of the U.S. dollar in 2013. I think he's onto something.
You would think that the U.S. dollar would strengthen, but how can a currency strengthen with an exponentially higher debt burden and higher interest payments? It can't. First, the bond holders need to lose big before a recovery can even start. The only true safe haven will be precious metals.
Tuesday, 18 December 2012
Thursday, 8 November 2012
As the fiscal cliff is nearing with the end of the year 2012 in sight and total public debt skyrocketing to the debt limit of $16.4 trillion, investors need to seriously start worrying about the U.S. bond market.
Technically, the bond yields on the 10 year treasury notes are bottoming out. We could see bond yields rising and bond prices collapsing. Just recently Jim Rogers disclosed that he is short U.S. bonds. Aside from the rising debt and the fiscal cliff we should note first that 30 year fixed mortgage rates have hit a new high of 3.5% and are on average at 3.4%. As bond yields follow the mortgage rates closely I expect bond yields to go up too.
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| Chart 1: 10 year U.S. bond yield |
Further evidence of a coming bear market in U.S. bonds can be found on the open interest front. Historically, when commercials are net short the bonds, bond prices will show weakness going further. This can be seen on Chart 1 versus Chart 2. When the bond yields go down on Chart 1, the net open interest will tend to go to the short side (red curve goes downwards on Chart 2). At the same time, when bond yields go up, the net open interest will go to the long side or upwards. The only time this correlation didn't add up was during the economic crisis of 2008 where bond yields were artificially suppressed.
To see what more evidence I have, go here.
Saturday, 27 October 2012
Friday, 14 September 2012
On 13 September 2012, Ben Bernanke announced a third round of quantitative easing also known as QE3. What the federal reserve will do is buy $40 billion in MBS and $45 billion in 10-30 year bonds per month. So a year from now, the federal reserve will have bought $480 billion in MBS and $540 billion in 10-30 year bonds.
So basically, the federal reserve will try to spur growth by helping the mortgage market and the bond market. But there is a catch in the deal. What investors need to pay attention to is the yearly interest payment on the U.S. government debt.
As you can see, the interest payments on total U.S. debt (blue dots) follow the total U.S. public debt outstanding (red dots). The higher the U.S. debt, the higher the interest payments on this debt.
What will this mean for investors? Read it here.
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What will this mean for investors? Read it here.
Friday, 24 August 2012
As U.S. treasury yields (TBT, TLT) are starting to spike upwards, investors should pay more attention to this new trend. To help investors monitor U.S. treasury yields I'll point out another interesting correlation between U.S. debt held by foreigners and U.S. bond yields. We will see they are inversely correlated. If foreigners sell U.S. bonds, bond yields will go up.
The total public debt consists of two components:
1) Debt held by the public which is $US 11.177 trillion today.
2) Intragovernmental debt which is $US 4.783 trillion today.
The sum of these two is almost $US 16 trillion. The debt held by the public is increasing very rapidly, while the intragovernmental debt is stable.
Of these two components, the first one can be held by foreigners.
To see the foreign holdings you can go to this site: Treasury.gov.
Avondale Asset Management has recently updated the percentage debt that foreigners held on in April 2012. They put up chart 1: Percentage of Publicly Traded Federal Debt Held by Foreigners.
To read the full analysis, go here.
The total public debt consists of two components:
1) Debt held by the public which is $US 11.177 trillion today.
2) Intragovernmental debt which is $US 4.783 trillion today.
The sum of these two is almost $US 16 trillion. The debt held by the public is increasing very rapidly, while the intragovernmental debt is stable.
Of these two components, the first one can be held by foreigners.
To see the foreign holdings you can go to this site: Treasury.gov.
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| Table 1: Foreign holdings of U.S. treasuries |
Avondale Asset Management has recently updated the percentage debt that foreigners held on in April 2012. They put up chart 1: Percentage of Publicly Traded Federal Debt Held by Foreigners.
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| Chart 1: Percentage of Publicly Traded Federal Debt Held by Foreigners |
Wednesday, 22 August 2012
Just by having heated (and uncomfortable) discussions with seekingalpha commenters I learn new things. This is what you get when you write financial articles without any financial background.
But there are positive things coming from discussions.
Today I found a very nice interactive chart to follow the Federal Reserve's balance sheet (Chart 1).
You can play with the interactive chart here:
http://clevelandfed.org/research/data/credit_easing/index.cfm
And what's very interesting is that the federal reserve has massively increased their treasury holdings. It's no wonder that bond yields are going down in the market. It won't be long when the federal reserve's balance sheet consists only of treasuries and mortgage backed securities, which are the most risky assets in the world.
But there are positive things coming from discussions.
Today I found a very nice interactive chart to follow the Federal Reserve's balance sheet (Chart 1).
You can play with the interactive chart here:
http://clevelandfed.org/research/data/credit_easing/index.cfm
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| Chart 1: Detailed Federal Reserve Balance Sheet |
Tuesday, 21 August 2012
Bloomberg reported on 20 August 2012 that banks are stepping up their U.S. treasury buying. As deposits increased 3.3% to $US 8.88 trillion in the two months ended July 31 2012, business lending rose 0.7% to $US 7.11 trillion, Federal Reserve data show. This inherently means that banks aren't lending money to the private sector, but are lending their money to the U.S. government. Peter Schiff pointed this out on the Peter Schiff Show of 20 August 2012. Banks bought $US 136.4 billion in bonds (TLT) already this year, pushing their holdings to $US 1.84 trillion.
Let's take a snapshot of the debt maturities in 2011 and 2012 and quickly compare them (Chart 1 and Chart 2: U.S. treasury debt by Year of Maturity (2012) ) (I talked about debt maturities in this article).
You can immediately see that short term debt has doubled in 1 year time. The biggest buyers of these treasuries were the federal reserve, domestic investors, banks, emerging markets like Japan and China. It's no wonder that bond yields have gone down with all this buying of U.S. treasuries. But these yields have started to rise sharply just recently, topping 1.85% for the 10 year U.S. treasuries (Chart 3).
If you want to know what impact this will have on the banks, go read the full version of this article.
Let's take a snapshot of the debt maturities in 2011 and 2012 and quickly compare them (Chart 1 and Chart 2: U.S. treasury debt by Year of Maturity (2012) ) (I talked about debt maturities in this article).
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| Chart 1: U.S. treasury debt by Year of Maturity (2011) |
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| Chart 3: 10 year U.S. treasury yield |
If you want to know what impact this will have on the banks, go read the full version of this article.
Saturday, 14 July 2012
A couple months ago, Belgium sold government bonds to the public. For example 10 year bonds at 5%. I'm living in Belgium, so I took this example. I've never really looked at how profits are being made by selling/buying government bonds. So let's analyze this a bit. This is just a note to myself.
Let's take a 10 year Belgian government bond at 5% (Chart 1). Suppose I bought an amount of 1000 euro of these bonds. This means that after 10 years I get paid with: 1000 + 10*5%*1000 = 1500 euro.
Indeed, after 10 years I made 50% profit on the principal. 1000 euro became 1500 euro.
What happens when 7 months later, bond yields go down to 2.65%, like today is the case (Chart 2).
Let's reperform the calculation. If I buy an amount of 1000 euro of these 10 year Belgian bonds. I get repaid with: 1000 + 10*2.65%*1000 = 1265 euro.
That's a pretty high profit if you ask me. Gold has been doing worse in those 7 months, it went up only 5% in euro terms.
Now let's go a bit further. If the interest would be cut in half again from 2.65% to 1.25%, what will be my profit?
1265 - 1125 euro = 140 euro
My percentage profit = 140/1000 = 14%
And when it gets cut in half again from 1.25% to 0.625%.
1125 - 1062.5 = 62.5 euro
My percentage profit = 62.5/1000 = 6.2%
And when it gets cut in half again from 0.625% to 0.312%.
1062.5 - 1031.2 = 31.3 euro
My percentage profit = 31.3/1000 = 3.1%
You see, the lower the interest rate is, the less profit you can make in proportion to the yield cut. I can't understand how people still want to buy these government bonds at these low yields.
Talking about a bond bubble... it's staring right in your face. U.S. 10 year government bonds are now at 1.5%. If that yield would go to 0%, you could make only 15% profit. Gold will ultimately go much higher than this 15%.
Edit:
I still haven't figured out how to calculate the yield-price bond curve the correct way. But instead I'll just use the Nomura curve here, much easier:
Let's take a 10 year Belgian government bond at 5% (Chart 1). Suppose I bought an amount of 1000 euro of these bonds. This means that after 10 years I get paid with: 1000 + 10*5%*1000 = 1500 euro.
Indeed, after 10 years I made 50% profit on the principal. 1000 euro became 1500 euro.
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| Chart 1: Belgium 10 Year Government Bonds |
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| Chart 2: Belgium 10 Year Government Bonds |
Let's reperform the calculation. If I buy an amount of 1000 euro of these 10 year Belgian bonds. I get repaid with: 1000 + 10*2.65%*1000 = 1265 euro.
So after ten years my 1000 euro becomes 1265 euro. That's a 26.5% profit in 10 years.
Now comes the clue. If I sell my 10 year Belgian bonds (with 5% interest) on the market, as compared to the current rate of 10 year Belgian bonds today (with 2.65% interest), I will make profit.
That profit is: 1500 - 1265 euro = 235 euro.
How much percent profit is that? 235/1000 = 23.5%
That's a pretty high profit if you ask me. Gold has been doing worse in those 7 months, it went up only 5% in euro terms.
Now let's go a bit further. If the interest would be cut in half again from 2.65% to 1.25%, what will be my profit?
1265 - 1125 euro = 140 euro
My percentage profit = 140/1000 = 14%
And when it gets cut in half again from 1.25% to 0.625%.
1125 - 1062.5 = 62.5 euro
My percentage profit = 62.5/1000 = 6.2%
And when it gets cut in half again from 0.625% to 0.312%.
1062.5 - 1031.2 = 31.3 euro
My percentage profit = 31.3/1000 = 3.1%
You see, the lower the interest rate is, the less profit you can make in proportion to the yield cut. I can't understand how people still want to buy these government bonds at these low yields.
Talking about a bond bubble... it's staring right in your face. U.S. 10 year government bonds are now at 1.5%. If that yield would go to 0%, you could make only 15% profit. Gold will ultimately go much higher than this 15%.
Edit:
I still haven't figured out how to calculate the yield-price bond curve the correct way. But instead I'll just use the Nomura curve here, much easier:
Wednesday, 11 July 2012
I have been talking a lot about the federal reserve balance sheet. But what is it composed of? And how did it evolve higher?
But the most interesting part is the mortgage backed securities area in brown. In that period, congress passed the Emergency Economic Stabilization Act of 2008, which authorized the Treasury to purchase mortgage-backed securities. As a consequence, the brown area increased in size at the same time when lending to financials decreased. That means that the federal reserve has bought approximately $US 1 trillion of mortgage backed securities in an attempt to support the housing market. It didn't do much to the housing market. New home sales and housing starts were flat, but the housing market index improved a bit though.
I will point out the importance of convexity to make my case of lower interest rates in the foreseeable future.
Chart 1 gives the composition. You can see that QE1 and QE2 were mainly bond purchases (light brown area). QE3 should be another round of bond purchases and should expand the light brown area again.
Second, the spike in 2008 was mainly lending to financial institutions at the time of the banking collapse. This lending has been paid off in 2010.
But the most interesting part is the mortgage backed securities area in brown. In that period, congress passed the Emergency Economic Stabilization Act of 2008, which authorized the Treasury to purchase mortgage-backed securities. As a consequence, the brown area increased in size at the same time when lending to financials decreased. That means that the federal reserve has bought approximately $US 1 trillion of mortgage backed securities in an attempt to support the housing market. It didn't do much to the housing market. New home sales and housing starts were flat, but the housing market index improved a bit though.
I will point out the importance of convexity to make my case of lower interest rates in the foreseeable future.
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| Chart 1: Federal Reserve Balance Sheet |
To read the analysis go here.
Friday, 22 June 2012
Monday, 11 June 2012
While many investors want to believe that U.S. treasuries (TLT, DTYL) are a safe haven, I will use this article to debunk that myth with plain hard evidence. I believe holding U.S. bonds is the worst investment going forward.
I will make an in depth analysis on debt maturities in this article. I think all investors need to be aware of this trend that indicates looming default in U.S. bonds.
I will make an in depth analysis on debt maturities in this article. I think all investors need to be aware of this trend that indicates looming default in U.S. bonds.
Thursday, 7 June 2012
We already know China is slowing down, because their imports of key commodities have been going down lately. I summarized this already in this article. We saw that industrial commodity imports were declining, while gold imports and U.S. treasury buying skyrocketed. I believe China has enough tools to keep their real estate and stock markets from falling. To find out how, go to my analysis here.
Sunday, 29 April 2012
In one of my previous articles I monitored the velocity of MZM, to see if treasuries were likely to go up or down. The new numbers of velocity of MZM are out today at 1.434 (Q1 2012), down from 1.451 (Q4 2011). To see what this means for your portfolio, go to: Velocity of MZM going down.
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