E The Fed Scares Everyone About Treasuries From Time To Time. Is It A Scam?

Zero Hedge spoke of a crisis in margin calls because of CDSs, not because of treasury bonds. But Zero Hedge has warned about this liquidity problem in treasuries. Are they just reporting? Are they fooled? I don't know. Bloomberg warned of treasury liquidity drying up, however, in more than one article. 

A few months after these warnings, the Chinese decided to sell over 100 billion dollars of treasuries with no trouble at all! 

And Washington's Blog reported that there is a lawsuit filed after the "warnings"  claiming that the big banks, the dealers who suddenly didn't want to be market makers, were actually rigging the bond market, no doubt with the Fed's blessing. 

So, why would the primary dealers want to dry up liquidity? Well, it is pretty simple. They want borrowers to pay higher interest rates.  And if you don't think that this is a scam of sorts, Alan Greenspan said that very thing. He said bond investors will not stomach low interest rates for much longer. 

Does anyone really believe Greenspan? It appears that there are fewer buyers because the banks who want higher interest rates are squelching liquidity. That appears to be a classic scam. It appears to be a conspiracy.

There are obviously margin calls in markets all over the place. But that should cause a flood into treasuries and more demand for them, as well as lower interest as they go up in value. It doesn't make sense to me that treasuries will fall out of favor in this environment. 

The only way treasuries could fall out of favor is if there is so much money chasing them that they have become like commodities, like copper, or stocks, and are subject to massive margin betting. 

In crisis they have always been cover from the storm. If that is no longer true, then the Fed has allowed cornering of the bond markets, and they will no longer be doing their job to sell bonds as the most important thing they do. At that point in time, why even have them around. 

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I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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Gary Anderson 5 years ago Author's comment

Author note: According to Bloomberg, there is a potential scam pushing bond prices lower and yields higher. The yields should be lower, and there is more demand for bonds than the bankers are allowing, according to the lawsuit: www.bloomberg.com/.../primary-dealers-rigged-treasury-auctions-investor-lawsuit-says