Technical Default Options – US Government Shutdown Analysis (Part2)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

The real challenge and issue:

The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.

Breakdown of political party representation in...
Breakdown of political party representation in the United States Senate during the 112th Congress. Blue: Democrat Red: Republican Light Blue: Independent (caucused with Democrats) (Photo credit: Wikipedia)

What are the consequences:

Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.

And yet, no Creditor Nation of the USA seem in the least bit prepared for the hard bargaining the USA Treasury officials will engage in when the technical default moves into a more serious phase.

This is commercial war on a scale we have not experienced for quite some time.

And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.

The western front of the United States Capitol...
The western front of the United States Capitol. The Capitol serves as the seat of government for the United States Congress, the legislative branch of the U.S. federal government. It is located in Washington, D.C., on top of Capitol Hill at the east end of the National Mall. The building is marked by its central dome above a rotunda and two wings. It is an exemplar of the Neoclassical architecture style. (Photo credit: Wikipedia)

What next?

Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.

theMarketSoul ©2013


US Treasury Yield Curve – The Shutdown Analysis (Part 1)

Seal of the United States Department of the Tr...
Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

Today we very briefly focus on the dynamics we have observed in the US Treasury Yield Curve between two critical dates:

1. The Yield Curve at 30 September 2013 – The day before the US government shutdown officially began

2. Friday 11 October 2013, exactly 11 days into the White House, Congress and Senate stand-off

YC shutdown AnalysisWhat can clearly be observed from the Yield Curve for Treasury Bills (T-Bills) dated 30 days is that the spread between 30 September 2013 (at 0.10%) to the rate at 11 October 2013 (0.26%) has significantly increased and that the Yield Curve has become inverted.  Normally the sign of a recession or other financial calamity to come.

Our question:

Will Thursday 17 October 2013 be D-Day (for Disaster or Domino-day) when the whole lot starts tumbling down again?

The Return of Risk?

Department of Treasury Seal
Department of Treasury Seal (Photo credit: woodleywonderworks)

We take a brief look at two interesting Treasury Yield curves today.

The first Yield Curve takes a snapshot view of the yield curves at the end of Q1 2011 and Q1 2012.
What is very noticeable is the fact that the overall yields for the end of Q1 2012 is significantly lower than a year ago. Taking a look at the at the 5 year T-Note yields as an example, the spread between the end of March 2011 (5Yr T-Notes at 2.24% ) and the end of March 2012 (5Yr T-Notes at 1.04%) was 1.20% down. The question is what factors drove down the ‘risk-free’ rate on US Treasuries?

However, turning our attention to the second graph below, indicates a slightly different perspective; and hence the title of this post. Has and is risk returning to the capital and stock markets to levels we previously experienced?

Not quite, is the short answer, because the spread between 31 December 2011 (0.83%) versus the 1.04% rate at the end of March 2012, only indicates an uptick of 21 basis points in the yield rate. The significance is not the percentage spread, but rather the direction of movement and we will continue our analysis at the end of Q2 2012 to establish whether the direction in Q1 2012 will be maintained into Q2 and beyond.

The final question to ponder is this:

Are we finally seeing the corner turned, or are there still significant risks in the global economy and sovereign debt markets to cause a few further after shocks in the months to come?

theMarketSoul ©2012

The BIG Sovereign Debt Structure cliff – Part 1

In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.

English: Update history of the rates of the Eu...
Image via Wikipedia

Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to.  With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.

New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.

English: Various Euro bills.
Image via Wikipedia

Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises.  Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.

Auction Calendars

Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:

The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.

US T-Bill Auctions schedule

Seal of the United States Bureau of the Public...

To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)

English: Development of government debt in the...
Image via Wikipedia

We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.

theMarketSoul ©2012

The Flight – Keeping an eye on the real 30 Year Treasury Yield Rates

The real (inflation adjusted) 30 Year T-Bill rates have since the beginning of the year averaged 1.72% (simple averaging).



Since the beginning of September 2011 the average real rate has dipped to below 1.00% to 0.99%. (Our measurement).


Does this mean that the flight to other asset classes is now in full-swing or rather; where on the ‘flight to safety’ trajectory do we believe we are now?


We offer no opinion, but keep your beady eye on the T-Bill rates in the months to come, especially when the election process officially kicks off in the USA.


theMarketSoul ©2011

US Treasuries – Expanding the confidence time horizon

In our previous analysis piece on the Erosion of Confidence in the Capital Market, we discussed the downward trend in US T-Bill since 2006. In today’s brief analysis piece we have expanded the time horizon to the last 10 years from the beginning of 2001 to the end of the second quarter in 2011 (being June 2011). The view is each quarter end point for both 1 and 10 Year US T-Bills for this 10 year period.


What is interesting about both the 1month, 1 Year & 10 Year charts is the steady rise in rates (and economic confidence since the Iraq war in 2003 for both 1month and 1Year T-Bills). The Iraq war was declared on 19 March 2003 and this is the low point of the yield curves, followed by a steady rise in yield rates to their highest point (1 Year T-Bills) on 27 June and 18 July 2006 at 5.28% respectively.

The other point to note is the steady state of the 10 Year T-Bills between 2001 to 2006 bouncing around between 4% and 5% and then the steady erosion in returns since Q3 2006. As of 19 August 2011, 10Year T-Bills yielded a nominal 2.07% or a real (inflation adjusted) return of 0.02%.

The flight to more traditional bullion assets or other currency classes has been marked, with currencies such as the Swiss Franc, Canadian Dollar, Sterling Pound & Australian Dollar appreciating in value relative to the US Dollar as the flight to perceived safer haven assets classes and categories continue.

Our sister site (theVirtuousContinuum, launching on 26 August 2011) will have a more detailed briefing and analysis regarding the lack of Global coordinated Financial and Economic Leadership in order to stem the tide of confidence ebbing away in the global capital, commodities and wealth markets.

 theMarketSoul ©2011

Source Material:

US Treasury web site at:

The source input data is available by clicking on this link

US Treasuries – A steady erosion in confidence?

For today’s brief analysis of the US Treasuries (T-Bill) Yield rates, we constructed the chart and table below utilising data from the US Treasury official site.

We took a point in time being mid August for 5 consecutive years from 2006 through to 2011 and compared the 1-month through to 30 Year T-Bill Yield Curves.

As can be seen, the slope of the curves from 2006 – 2011 on all T-Bills is downward from left to right.

Some analysts view this as an erosion in confidence over this specific time period, with the lower yields indicating lower confidence in the US economic situation.  This feels a bit counter intuitive, when we compare it to our article The US Treasury Yield Curves – Are the markets really that bothered?  However, the argument is that there is a ‘flight to safe-haven / alternative asset classes’.

However, it might only partly explain the Standard & Poor’s position.

In tomorrow’s chart, we will expand the time horizon we are looking at to 10 years and choose the quarter ends to see if a different picture and analysis emerges for 1 Year and 10Year US T-Bills.

theMarketSoul © 2011