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Date: Sun, 14 Feb 2010 11:23:51 -0500
From: pintle <pin..._at_rayservers.net>
To: gold-silv..._at_rayservers.com
Subject: [gsc] US Treasury auctions
[As said in the below article, primary dealers have to buy Treasuries.
What is not said is that now a days the Fed will buy from the primary
dealers what they did not want to buy, what they could not resell. So,
in effect, some of the amount in Primary Dealers really should be in the
Direct Buyers amount.]
http://www.istockanalyst.com/article/viewarticle/articleid/3861666
Forget Greece, The US Almost Had A Failed Treasury Auction
By: Graham Summers Friday, February 12, 2010 1:50 PM
While most of the investment world focuses on the various "senior
officials" (none of whom seem to have actual names or positions)
commenting on whether Greece will or will not be bailed out/ receive an
emergency loan/ offered moral support, etc, a far more significant debt
story is emerging in the US.
On Wednesday the US offered $16 billion worth of 30-year Treasuries (US
debt that will mature in 30 years). Before we get into the details of
how much of a disaster the auction was we're going to do a brief review
of how US debt issuances work.
US Debt is issued by the US Treasury. You can bid as much as 30 days in
advance of a debt auction. When the auction actually takes place
investors can buy directly (Direct Buyers) by buying Treasuries
themselves OR they can buy indirectly (Indirect Buyers) by using a
Primary Dealer: one of 18 Banks and Securities Brokers who do business
directly with the US Federal Reserve Bank of NY and so HAVE to buy
Treasuries at auctions to insure liquidity.
Direct buyers buy "off the radar" meaning you cannot track who the
buyer is.
If an investor buys indirectly, he or she has to notify the Primary
Dealer of his/her intentions in advance. This might sound a bit like
showing your hand while playing poker. And it is. The only reason to go
through a Primary Dealer (make an Indirect Purchase) is because you
want to buy a sizable load of Treasuries (remember, Primary Dealers
have a special relationship with the Fed and so can insure you get the
amount you require).
Historically, Foreign Governments (China, Japan, etc) have made up the
majority of Treasury purchases. Because of this, the Indirect Buyer
purchases are typically thought to represent just how demand Foreign
Governments have for US debt.
I realize this sounds complicated so simply think of it this way:
1) Direct Buyers: folks who buy straight from the Treasury, typically
comprising a minor stake in US debt purchases
2) Indirect Buyers: folks who buy LARGE chunks of US debt, typically
Foreign Governments
3) Primary Dealers: banks that HAVE to buy US debt to insure an
auction doesn't fail. You don't want to see a lot of Primary Dealer
purchases as this means that those who can CHOOSE to buy US debt DON'T
want to.
On Wednesday, February 10 2010, the US Treasury issued $16 billion in
30-year Treasuries. Here are the buyer data points:
Buyer Purchase Amount (%)
Primary Dealers 47%
Direct Buyers 24% (A RECORD)
Indirect Buyers 28%
First of all, we see Direct Buyers hit a RECORD percentage of
purchases. This is extremely bizarre and somewhat disconcerting given
that we have no way of know who these buyers are. For all we know they
could be the Federal Reserve itself or other US-Government entities
buying "off the radar."
Indeed, on that note we know that the US Federal Reserve accounted for
11% of the total purchases. Folks, you're not dealing with a healthy
debt auction when the Fed accounts for 10% of purchases.
However, far, FAR more worrisome is the pathetic Indirect Buyer
takedown: 28%. Historically this number has been more around 40% (Tyler
at ZeroHedge notes that the average Indirect purchase of the last four
long-term Treasury auctions was 39.9%). To see such a MASSIVE drop off
in Indirect Buyers (40% down to 28%) is a MAJOR warning sign that
Foreign Governments are no longer willing to buy long-term US debt.
This auction was a very small step away from a failed auction. To see
Primary Dealers buying so much (remember they HAVE to buy it) and
Indirect Buyers so little, only confirms what I've been saying for
months, that the US is entering a Debt Spiral: a situation in which it
must issue more and more debt (while rolling over trillions of old
debt) at the very time that fewer and fewer investors are willing to
lend to the US for any lengthy period of time (more than ten years).
Folks, forget Greece, the US has its own debt problems. And they're
MAJOR. The fact that stocks RALLIED on this news tells you how
disconnected stocks are from reality. The Debt Spiral has started and
is now accelerating. It's only a matter of time before it becomes a
full-fledged Crisis. And this one will make 2008 look like a cakewalk.
If you're not already taking steps to protect yourself now, I strongly
urge you to give my Private Wealth Advisory a try. We've already
positioned our portfolio for the coming carnage. And five of our last
six picks have been winners, despite a plunge in the S&P 500.
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Received on Sat Mar 02 2024 - 00:57:20 CST