Clearly Today’s US Treasury Auction was an Epic Failure

Bonds are Getting Smoked Today
Look at how hard they are getting hit today and how hard they have been hit the last few days!

20-year (TLT) -1.30% today, -7% in 4 days
7 to 10-year (IEF) -0.89%, -3.7% in 4 days

Grandma won’t be sleeping too well when she gets her May 2009 statement…

Keep things in perspective, this note from Acrossthecurve.com –

http://acrossthecurve.com/?p=5730

“Market participants report very heavy paying by convexity based accounts which is the reason for the very long caption for this post. In my years in the bond market the crazed convexity crowd was always the last in for the trade. When they appear the trade is nearly over and it is time to go in the other direction. By definition, they often sell the lowest prices and buy the highest.

So maybe, just maybe, we are nearing a bottom after a brutal move.”

You can read about Convexity here, but essentially what this means is that Convexity players are crying “Uncle” and are just now hedging Bond Portfolios against the negative impact rising Interest Rates have on Bond Prices –

http://en.wikipedia.org/wiki/Bond_convexity

Here is a comparison of the 20-year US Treasury ETF (TLT) and the 30-year US Treasury Yield ($TYX = 30-year yield x 10). As you can see, TLT is now in a zone of massive support. I will be looking to buy a bottoming pattern here, especially with the understanding that the Convexity crowd is now panicking.

Remember, US Treasuries are a safe-haven trade, as is the US Dollar. I just wrote about the likelihood of a trading low in the US Dollar. So maybe something bad is about to occur – I’m thinking North Korea…