Diamonds Are Forever, No T-Bills Are

Over at a financial forum... 

We Nattered as our Naybob of IT did recently in these pages... As for the dollar and T-bills, and I KNOW this is going to create a shit storm, but we always tell the truth to our friends... if the central bank has its way, T-bills would be better than cash.  Noooo!!! Heretic!!! Not really, just a contrarian or realist with a funny looking hat.

NOBODY is dumping shorter duration T bills nor will they be in the near term. Not even the FED has enough of them as during QE3 they could no longer sell short dated to buy long dated, as they had INSUFFICIENT HOLDINGS.  And if you want to know how hoarded to the point of being scarce it is, read this.

[the BofA] liquidity stress [index] has more persistently risen (As opposed to to BofA Financial Stress index), only pausing its rise at times, before moving higher.  This persistence suggests to us that deteriorating liquidity is at the heart of and may be the primary driver of broader rising financial stress. Moreover, tightening of monetary policy by the Fed, first through tapering and now through tightening, may have been necessary from an economic perspective, but the tightening appears to be adding fuel to the fire of liquidity deterioration. In a world of significantly higher capital requirements for dealers, nobody should really be surprised that balance sheet is scarce and liquidity is lower,"  Bloomberg - Deteriorating Liquidity' Is at the Heart of Market Carnage

There is a dearth of shorter duration on the run collateral that could be at the center of an impending market liquidity event. NEGATIVE swap spreads and rates (3 month T-bill starting mid Sept if you were paying attention and other countries as well) tell you everything you need to know.  Everything is higher risk as in over inflated and many are liquidating to cash or equivalent.

Do you really think the Fed would do anything to jeopardize its $4.5T balance sheet which has a massive asset liability duration mismatch? Rising TREASURY rates would mean their short term liability costs would rise and their long term asset values would shrink. The banksters do not like getting sandwiched or double ended.

Not if but WHEN the HY, leveraged, junk and even higher grade corp bonds start blowing up, and equities are toast, and risk premia are rising, in a flight to safety, everybody will come running to pimp daddy or momma and T-bills will become not gold, not platinum, but as Mr. Bigglesworth would say, DIAMONDS ARE FOREVER.

Through misguided monetary policy the central banks are "inadvertently" collapsing the liquidity infrastructure, and if they have their way, at the end of the day, UST's will be the only product that has any liquidity left to it, forcing everyone to become a bond trader or vigilante. 

NIRP may be upon us, and if so, cash will effectively be taxed and T-bills will not. Get ready for the great confiscation my friends? and stay thirsty.  Out.