Zero Hedge: “If yesterday’s 10 Year auction was very weak, despite the market reaction post the Fed minutes ramping the paper to highs not seen since last May, moments ago the Treasury concluded this week’s auctions by selling another $13 billion in the August 30-Year reopening, in another relatively weak issue, which priced at 3.74%, a small 0.2 bps tail to the 3.72% When Issued.”
Opinion: In simple English, here is why this is important. But first there are three definitions:
- Short term bonds: 1-5 year in duration
- Intermediate bonds: 5-15
- Long term bonds: 15-30
The Federal Reserve only controls short-term interest rates.
When the Treasury offers US government bonds at auction they are usually bought up immediately. When they are not, which is what happened this week, long term rates may be forced higher to attract buyers, regardless of what the Federal Reserve does.
If the problem persists, the Fed will be forced to start buying the bonds that are not bid for – using newly printed money in another round of QE.
In our book Antichrist: The Search For Amalek, we envisioned such a scenario on page 180-81. But we placed that event after the rapture of the Church. Either we have the timing wrong, or this panic will right itself, or the rapture is close.
The answer is unknown, but here is the excerpt:
“At 2:00 p.m., rumors of a poorly bid Treasury auction of ten-year bonds started to rattle the bond market. Reports had been circulating for years that China and Japan had been curbing their purchases of US Treasury bonds because of unrestrained spending by the US government.
The US auctioned off longer-term Treasury bonds with even worse results, indicating that US debt was no longer attractive at current interest-rate levels.
In an attempt to calm financial markets, Federal Reserve chairman Janet Yellen appeared before the Senate Banking Committee to explain why Quantitative Easing (QE) 4, the same money-creation scheme that had seemed to work for her predecessor, was having little or no effect on the recent market sell-off.
The conversation shifted instead to the weak bond auctions of the past two days.
Committee chairman Mike Reed (R, Florida) reminded those present that if other nations such as China, Japan, or Russia were unwilling to finance the country’s two-trillion-dollar deficit and the national debt of almost twenty trillion dollars, interest rates would necessarily rise quickly and destroy the fragile housing market.
Chairman Yellen was a reassuring presence that morning, explaining to Congress that there was nothing to worry about as far as America’s ability to continue to borrow. She said the Fed had its finger on the pulse of the economy and was prepared to buy up all the bonds that had not been bid for in the recent Treasury auctions. Yellen’s comments, however, had little effect in calming the markets.
Traders on global exchanges knew that Yellen’s comments meant that the Fed would simply “create” more money to finance America’s exploding debt. By noon, the Dow Jones Industrial Index was down by almost 1,100 points.”