Like last year, bond manipulators apparently cut short their holiday vacation in order to conduct a year end (three day) window dressing session.
Of course, the goal of the window dressing operations have not only been to bid up prices of domestic bonds (and therefore lower yields), but more importantly to manage the yield curve which has reached alarming conditions.
Curiously last Friday, in what seems as an attempt to widen the spreads, 10 year yields spiked to 4.6%! And perhaps in realization that while a selloff in the 10 year bonds may indeed widen the spreads, higher yields means HIGHER interest rates! So bond managers went into a turnaround to focus instead on the bidding activities on the front end.
So the window dressing operations as seen from week on week (top) and from two weeks (mainly from three trading days—two from this week’s holiday truncated session and from last Friday).
Again the focus of the bids were on the short end (green rectangle at lower window)
Seen from a year to date basis, the massive three day bidding sessions only eased part of the upside pressures on the overall Philippine treasury spectrum. Yields have generally risen with the exception of 1 and 10 year treasuries.
Since 10 year have been the benchmark for interest rates, apparently bond manipulators have kept its yields from rising in 2015.
Seen from the yield variance of 10 year relative to T-Bill counterparts, the 3 day window dressing operations managed to lift the spreads marginally away from negative.
That’s with the exception of 10yr 3 months which spread has crashed anew!
It’s important to point out that the flattening inversion process has been a trend.
The above shows of the one year and one month trend. A trend, which has only accelerated in 2014-15 (see long term trend below).
And bond volatility has lately emerged out of the intermittent interventions from faceless bond manipulators.
The flattening to inversion process as seen from the yield variances of the 10 year bonds relative 1 and 2 year notes.
Bond managers have elevated the 10 year 1 year spread, but not the 10-2 year.
The same character can be seen with the front bonds (3-5 year relative to the 10 year). The difference has been that yields of all three has recently inverted with the 10 year contemporary (see blue rectangles).
Said differently, coupon yields have been higher for these short end bonds relative to the 10 year. This means profit windows from yield arbitrage have closed to virtually nil.
Last week’s window dressing operations buoyed the spread out of negative. Nonetheless the variance of all three remains at zero bound or spreads are at the borderline with negative. The jury is out in 2016 as to the lasting effects of this week's window dressing operations. My bet is that we should see a return of inversion.
The above developments only reveals that contra mainstream and establishment announcements, pressures on financial liquidity as expressed through credit activities has been simmering or mounting.
This alternatively means that considering the heavy dependence on credit to spike GDP for instance Php 3 of credit to generate Php 1 of GDP in the 3Q, the steep flattening or signs of invesion translates to various risks (credit, interest rate, market and economic) that are being amplified.
The flattening inversion process as seen via the spreads of the 10 year relative shorter counterparts on an annual basis since 2009.
The flattening inversion process as seen via the spreads of the 20 year relative shorter counterparts on an annual basis since 2009.
Again in contrast to the mainstream whom largely remains intentionally blind or oblivious or unconsciously ignorant of the influence of bond yield spreads on credit activities, the tightening of spreads have begun to impact bank credit activities.
You see, the consensus 'experts' are only concerned with prices involving stocks and property or asset bubbles. The same experts seem as programmed to see other prices as existing in a vacuum!
Yet the narrowing of spreads or emergence of negative spreads even comes in the face of DISINFLATION.
10 straight months of 30%+++ money supply growth 2H 2013-1H 2014 spiked CPI inflation, since then, M3 has crashed which was reflected on government CPI. November's CPI bounce has yet to establish itself as a bottom. Chart updated to include BSP's November liquidity and bank credit data.
While credit growth has ebbed from the 2014 peak, it remains on a double digit clip. Yet no one dares ask, given all the streak of double digit credit growth, where has all the money been flowing to? Why the disinflation?
Other emerging market nations like Vietnam experienced negative yield curve due mostly to a burst inflation pressures. Not here.
The takeaway: There is NO SUCH thing as a Free Lunch FOREVER. The unforeseen cost from borrowing from the future to spike statistical GDP has not only begun to surface, it has been spreading and escalating.
And shouting statistical talismans or manipulating markets will not do away with the eventual revelation of unintended consequences from the accrued sins derived from redistributionist 'trickle down' capital consumption policies.
Phony Boom has now been morphing or transitioning into a Bust.
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