Now we have long bonds as collateral for derivatives. There were derivatives of a sort in the Great Depression but collateral was more likely a commodity or gold. With long bonds in big demand, the long end of the curve is flat, and banks won't lend as much with no chance of a better interest rate.

Dimon said banks would not benefit from a raise in interest rates that much because they would have to pay more interest. I am surprised they declined in price. Makes no sense.

Well, the banks were exposed for manipulating bond auctions, according to a lawsuit not yet settled. But if that is the case, then they are exposed in the scheme of helping yields go up artificially. While that is a noble goal, the way they went about it appears fraudulent, pending settlement of the case.

But maybe they are just giving up and are wading into the dark murky waters inhabited by Summers and Roubini. I would rather see long bonds banned from use as derivatives collateral. But that will not happen so Summers and Roubini have their nets waiting, like Venus Flytraps.

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

Author note: Even with banks artificially goosing yields based on the new auction lawsuit as reported by Bloomberg, yields on long bonds are low and actually should be LOWER.

I agree. Politics is a joke now. Both parties are globalists, face it. The last president of a sovereign nation was JFK in my opinion. So, while the Democrats prefer less war they are bought out in other ways by the globalists. Sarah Palin and Hillary Clinton have both been sponsored by Lady Lynn Rothschild, so that should tell us everything we want to know about this world order.

So, what if the Fed keeps raising short rates and long rates do not respond, due to their demand as collateral in the massive derivatives markets? They will have to back off, or create an inverted yield curve, possibly. How would that impact the dollar?

Yes, and it is amazing that these nations have been so slow to react. They should have stopped trusting the United States the day Richard Cheney became co president.

Shared this. Truth is, the long bond is hostage to artificial demand for collateral in derivatives deals. As long as the long bond is hostage, the Fed really has little to do to fix things for main street.

10 year is used as collateral for derivatives deals, and is in massive demand. The Fed should raise rates but until the 10 year is freed from use as collateral, it will likely hold onto low yield and high price.