I have read about treasury bonds for years. For some reason, I have trouble really understanding treasury markets. The whole "tail" thing confuses me. Right now it might be more important, and interesting, to understand what's going on. Lavish explains everything, including basic bond terms, tails, and failed auctions. He also talks about btc, but in this case it's the bid to cover ratio.
TLDR: Things are ugly, foreign demand for treasuries is dropping, domestic demand isn't picking up the slack, BUT... banks probably have enough liquidity to keep the game going a while longer.
Isn't the tail simply the difference between the lowest price paid at auction and the average auction price?
Lavish is the best.
Wow. You're good. You can skip the beginning.
I am pretty sure James covered auctions on either Peter or Preston's podcast some months ago. I don't know all these episodes blend into one over time.
I know. I can't keep them straight in my head.
The tail is the high yield minus the bond’s when-issued yield
Positive tail means weaker than expected demand
Larger positive tail means worse auction
High yield = low price paid but thanks for clarifying the when issued part.
I think the US treasury is going to start buying treasuries too per Marty Bent this should create artificial demand thus keeping rates from exploding higher
QE infinity?
How would that work?
Treasury buys bonds from itself?
Yeah it’s all about duration. Sell short term bonds use funds to buy long term bonds
How do you picture this?
For me they are the worst investment to have on your portfolio, at least here in India.
In theory yes. In practice no because at an auction the price goes down / interest up until there is a sucker that takes the bet.
You can see this with junk bond from crappy companies. At some point the risk/reward is closer to a lottery bet and almost always someone is willing to gamble (until one day nobody is anymore ofc...)
Federal Reserve is the buyer of last resort
They don't buy at auction tho. They only buy secondary on the market.
Although that's only a technicality. Entities can buy at auction knowing the fed will eat it up anyways when they sell...
I've heard a lot of opinions from a lot of different people over the years but there's one thing they all agree on.
The money printing will continue.