By: Rob_Kirby
A few years ago, when J.P. Morgan grew their derivatives book by 12 Trillion in one quarter[Q3/07] – I did some back of the napkin math – and figured out how many 5 and 10 year bonds the Morgue would have necessarily had to transact on their swaps alone – if they are hedged. The bonds required to hedge the growth in Morgan’s Swap book were 1.4 billion more in one day than what was mathematically available to the entire domestic bond market for a whole quarter?
Put simply, interest rate swaps create more settlement demand for bonds than the U.S. issues.
This is why U.S. bonds “appear” to be “scarce” – which the bought-and-paid-for mainstream financial press explains to us is “a flight to quality”. Better stated, it’s a “FORCED FLIGHT [or sleight, perhaps?] TO FRAUD”.
Assertions that netting “explains” this incongruity are a NON-STARTER. Netting generally occurs at day’s end – the math simply does not even work intra-day.
Further Evidence of Gross Malfeasance in the U.S. Bond Market
Back in 2008, at the height of the financial crisis, folks are reminded how the Fed and U.S. Treasury were unsuccessful in finding a financial institution to either acquire or merge with Morgan Stanley. Unfortunately, Morgan Stanley’s financial condition has continued to deteriorate:
Analysis: How Morgan Stanley sank to junk pricing
REUTERS | June 1, 2012 at 5:45 pm |
(Reuters) – The bond markets are treating Morgan Stanley like a junk-rated company, and the investment bank’s higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade this month.
Bond rating agency Moody’s Investors Service has said it may cut Morgan Stanley by at least two notches in June, to just two or three steps above junk status. Many investors see such a cut as all but certain
full article at source: http://www.marketoracle.co.uk/Article35164.html
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- How Morgan Stanley sank to junk pricing (firstpost.com)
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- Morgan Stanley Bonds Trade at Junk Pricing, DowngradesFrom Mish: Coming; Will Morgan Stanley Survive? Top 5 Banks Collectively Have 45:1 Leverage (jhaines6.wordpress.com)
