Traders react in the pit to the Options of Treasury 10 years of the Group of the SFC in Chicago, August 10, 2010.
Credit: Reuters/John GressBy Emily FlitterNEW YORK | Thursday, July 7, 2011 5: 00 am EDT
NEW YORK (Reuters) - The Federal Reserve of $ 600 billion from the Treasury to purchase spree is over and the bond market is more nervous now that its largest bidder is cancelled.
Except for possible hiccups in August Congress if with the task to raise the legal limit of borrowing, the Government will go to issue 166 billion dollars in Treasury bonds and notes by primary dealers and months do not well where demand will be come from and at what price.
A possibility is investors like foreign central banks, insurance companies and fund managers, but their draught can be complicated; some of the Treasury yields are near its low. And for the first time since 2005, JPMorgan is reported, that there was no position of long in Treasury bills.
There where Europe Pompée sovereign debt problems once the application of the debt of U.S. refuge, news that the Portugal debt was downgraded to junk just woke the market this week. More brilliant economic data, and more recently the ADP employment report National, who has shown a jump surprise in jobs in the private sector in June, had more shine to these low-yield Treasury bills. Treasury bonds sold Thursday following the number of ADP and the strong June retail sales.
And the Congress still is struggling to raise the ceiling of the debt, with the last talks leaving a wide gulf between President Barack Obama and Republican lawmakers, as a potential defect deadline Aug 2 of Treasury draws near.
FAREWELL TO THE CERTAINTY OF THE PRICE
For the moment, leading dealers companies, banks and securities allowed to bid on behalf of clients in the auction of the Treasury Board, will be betting on a price without proof that they had to be able to sell the titles quickly on the secondary market, or the Federal Reserve.
"People are less willing to take on time without the certainty of three or four redemptions per week to support the market," said Rick Klingman, Director General of the Treasury Board negotiating to BNP Paribas in New York.
The duration is a measure of the risk of interest rates.
Which has already led to sales auction sloppier with borrowing higher for the high auction of Government gives correction to a higher note that available on the open market, a phenomenon called a "tail".
This happened two weeks ago, when three separate auctions "tail" in the worst week for sales of Government since March 2010.
Auctions of tail when bidders insist on lower prices for a given security or confusion about the application security causes bidders behave with caution.
The next test will be next Tuesday, when the Government sells 32 billions of dollars in the three-year notes.
"The auction have been unfolding with participants while knowing in advance that there would be a buyer in the post-auction in the secondary market," said Scott Sherman, strategist, interest rate Credit Switzerland in New York, one of the 20 primary dealers.
Sherman said it was particularly true in the notes of three years, the notes of five years and seven years.
"The Fed purchased immediately-tracks (in these deadlines) by volume, generally shortly after the building a somewhat important position and auction"he says. ".
"Sur-works" refers to bonds more recently issued to a given deadline.
"There may be a learning curve, where the auction on a first come, the triennial is sold at auction and people see what it looks like when there is less demand, then the next auction of three years is in August and you get a larger change in the call for tenders.
THE SET OF EQ
Second round of the Federal Reserve of the quantitative measures easing, which began in mid-November and ended June 30, has changed how major traders bought and sold the bonds, with - if temporary - stable way to earn profits of spreads.
Primary dealers followed hard the prices of the various titles along the yield curve, determine which were relatively expensive and which were cheap, place filling on securities in good markets and then sell the fed at a higher price.
Given that the Fed has kept dealers informed with a calendar purchase pre-specified, in which he registered securities groups, he had the intention to choose each day, dealers had much time to plan.
"Quickly (investors such as hedge funds) money wanted to play the game rich and cheap as well and play some volatility, but which is in part will go, said Christian Cooper, head of derivatives of dollar trading Jefferies & Co. in New York."
First round Fed's quantitative easing, which ended last March, was less than half of QE2 and traders did not intervene in these rigorous efforts to predict the FED's purchases first autour.
During the10, the Fed bought, between approximately $ 2 billion and 9 billion dollars in Treasury bills, each day, that it has entered the market. In a few weeks, he completed a transaction to purchase every day. In others, he purchased treasures on three or four days of the week.
Plans for the Fed to reinvest the proceeds of the maturation of the securities in its portfolio, but slows with no new purchases, the schedule for purchase to a net of water.
The Fed bought only $ 2.91 billion Wednesday. A single purchase transaction is set for this period of two weeks. the Fed will announce an another annex purchase July 13.
"We do not think there is enough appetite for risk and money around, fixed income foreign and domestic, to slightly more attractive levels of performance, is prepared to put some species to work.", said Adam Brown, co-maintainer of the Treasury negotiated at Barclays Capital in New York.
(Editing by Jan Paschal)
