March Market Meltdown?

The bond market is looking sick.

Something strange is happening in Treasuries
Read whole story here:

Let’s put this in perspective:

Date of 4-Week Treasury Auction

Indirect Bidder Acceptance Rate

January 5 2010

January 12 2010

January 20 2010

January 26 2010

February 2 2010

February 9 2010

February 17 2010

February 23 2010

This means that the Treasury took up EVERY single cent of competitive bids coming from indirect buyers. Remember, indirect buyers are usually assumed to be foreign governments (even the Treasury website admits this).

If this was the case yesterday, then foreign governments barely bought much of anything in yesterday’s auction (only 19% of total debt issued). Moreover, it implies that Primary Dealers (those having to buy) had to gorge on the auction to make up for the fact that few if any foreign governments are interested in buying our debt anymore (including even short-term debt).


One could potentially argue that this indirect buying came from the Fed covertly buying under the guise of an indirect bidder (the Treasury recently changed the definition of what qualifies for an indirect bidder to make it more vague). It IS rather odd that every single cent of competitive bidding coming from indirect buyers was filled. It’s almost as if the indirect buyers knew precisely WHAT yield to accept… OR were simply trying to take up the slack in what was already a VERY weak auction.

I cannot tell you which of the above is true. Heck, neither of them could be and something completely different could be happening. But regardless, something very, VERY strange is going on in US debt auctions.


Equities are trading on thin volumes

We see by the volume indicator that over the past year the number of shares traded has dropped approximately 50% from the 5 to 6 million mark to just over 3 million today.
We also note that this coincides with a downward trend in MACD over the past seven months. 

Combined with what appear to be some very weak Treasury auctions lately we ask the question - 

Will we see a market meltdown this month as the result of a bond auction failure?


Is this just a warning shot prior to a long, slow grind of a year or more, lower in bond prices and stocks?

Or, perhaps there is some other explanation?


  1. Pw, do you believe that a gilt auction failure is possible this year and why?

  2. In response to your question Anonymous, we will post an update on the UK situation shortly.

  3. Hi PW,

    If the FED is buying the treasuries, which I strongly believe, because no one else is stupid enougn to buy U.S. debt, why would there ever be a failed auction. The fed has unlimited money, and they are monetarizing the debt.

  4. Anonymous at 11:05 am brings up an interesting point. Yes, the Fed would be monetizing the debt if they are indeed buying Treasuries. While this may seem like a good solution since they have "unlimited" fiat money, there are very negative consequences to such behavior. Foreign lenders could stop lending altogether unless they receive much higher yields. Higher yields would crash the market as Treasuries are considered almost risk free. Foreigners could also insist on only lending the US money in a foreign currency (Yen, Yuan etc). This introduces currency risk into the equation. Clearly, if monetization is happening, the results achieved will be far from desirable. Never in history has a solvency problem been solved by liquidity to the best of my knowledge.


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