In introductory economics one usually learns about Giffen goods, where people paradoxically consume more of it as the price rises, violating the law of demand.  Your demand for an item is influenced by its relative value, and your over all wealth: substitution and income effects. This is formalized in the Slutsky equation (as […]

Today everything in the market tanked. The US faced its first day as a AA+ rated nation and Europe continued to get crushed as it seemed no one was safe from investors’ debt fears. Join Nicholas Carlson, Politics editor John Ellis, and Politics reporter Zeke Miller as they discuss the […]

Senate Minority Leader Mitch McConnell (R-KY) called for “significant entitlement reforms” Monday in a speech to Kentucky business leaders, the Associated Press reports.

[credit provider=”Wikipedia”] According to a Senate Banking Committee aide, the committee is gathering more information about the S&P downgrade of U.S. debt in preparation for a possible investigation.Earlier Monday, committee chairman Tim Johnson (D-SD) released the following statement on the downgrade:

President Barack Obama addressed the S&P downgrade in a statement to the American people Monday, saying “no matter what some agency may say, we’ve always been and always will be a AAA country.”

Standard & Poor’s has begun to downgrade states and municipalities Monday morning after stripping the federal government of its ‘AAA’ rating.

[credit provider=”Flickr” url=”http://www.flickr.com/photos/nasahqphoto/4251318245/sizes/l/in/photostream/”] President Barack Obama will deliver a statement to the press at 1 p.m. today, according to the White House.Obama will address the deaths of 30 American servicemen in Afghanistan on Saturday, as well as the S&P downgrade of U.S. debt, and the general state of the economy.

[credit provider=”en.wikipedia.org” url=”http://en.wikipedia.org/wiki/File:Batteries_comparison_4,5_D_C_AA_AAA_AAAA_A23_9V_CR2032_LR44_matchstick-1.jpeg”] I have received many emails and a few calls from friends, asking one question: What are the consequences of the downgrade? So I decided to put my thoughts on paper.  I break up the consequences into three categories: fundamental (the impact on the economy), emotional (the short-term […]

Duh.

Treasury Secretary Tim Geithner made his first public remarks about the S&P downgrade of U.S. debt Sunday in an interview with CNBC’s John Harwood.

[credit provider=”ap”] China’s official comment on the S&P downgrade was harsh and condescending. Released through Xinhua (via Reuters) the statement condemned America for its “debt addiction” and “short-sighted” political wrangling.”The U.S. government has to come to terms with the painful fact that the good old days when it could just […]

Now that the debt ceiling debate is over, the U.S. deserves to keep its AAA credit rating and it would be shocking if it was downgraded, Roger Altman wrote in a opinion piece for the Financial Times.

Mitch McConnell is apparently promisingthat last week’s histrionics over the debt ceiling were merely a prelude to a lengthy drama in which we re-enact this battle every time the debt ceiling needs to be raised.

Few things have been more confusing to traders in the last few weeks than the action in the bond market. With the USA on the verge of a near default and QE2 now over, there are few investors who would have thought that bonds would be an outperforming asset class. […]

[credit provider=”AP Photo/Charles Dharapak”] The markets — and the American people — always assumed Congress and President Barack Obama would reach a deal. But as late as Sunday, the White House considered economic collapse an increasingly likely outcome to months of failed talks.According to POLITICO, negotiations reached a stalemate on […]

The House of Representatives passed a bill to raise the debt limit and lower the deficit Monday night by a margin of 269-161.The bill will cut $917 billion from the federal deficit immediately through discretionary spending caps. Additionally, it authorizes the creation of a bipartisan fiscal committee which will report […]

The “historic, bipartisan compromise” reached to raise the debt limit does not end the struggle to reign in the federal deficit — in fact, it pushes the most difficult decisions off into the future.

We have a deal that could avoid default — now can Congress pass it?That is the question many in both parties are asking themselves today on Capitol Hill, where both house of Congress are preparing to vote on legislation no one really wants to pass.

[credit provider=”AP Photo/Charles Dharapak”] President Barack Obama and Congressional leaders announced they have reached a “historic, bipartisan compromise” to raise the debt limit and lower the deficit.The debt ceiling will be hiked in two stages the first with cuts agreed to now, and the second with cuts agreed to by […]

From the White House:

[credit provider=”Wikimedia Commons” url=”http://commons.wikimedia.org/wiki/File:Bipartisan_Congressional_leadership_meeting_February_2010.jpg”] Another wasted day.Senate Majority Leader Harry Reid postponed a vote on his plan to raise the debt limit until Sunday after 43 GOP Senators pledged to oppose the bill.

[credit provider=”AP Photo/Charles Dharapak”] The House and Senate will convene Saturday afternoon as they continue negotiations to raise the debt ceiling. But with just days to act before one or more of the major credit ratings agencies downgrades U.S. debt, Democrats and Republicans can’t seem to work together.The plan put forward by […]

[credit provider=”AP”] The debt limit increase bill introduced by Speaker of the House John Boehner passed the House of Representatives, but was quickly rejected in the Senate.Reid is setting the stage for a 1 a.m. Sunday cloture vote on the bill, followed by a vote to pass it on Monday morning.

Senator Harry Reid announced Friday that he will file cloture on his bill to raise the debt limit, setting the stage for final votes on the bill on Monday or Tuesday, before it would return to the House for final passage.

[credit provider=”AP”] Short-term credit markets are already hemorrhaging thanks to the lack of progress on the debt deal in Congress.This week, banks moved $37.5 billion from money market funds that are invested in Treasuries and other presumably safe securities, Dealbook reported — “the biggest weekly drop this year.”

[credit provider=”Wikimedia Commons” url=”http://commons.wikimedia.org/wiki/File:Radium_Dial.jpg”] Speaker of the House John Boehner’s job is on the line as the House of Representatives prepares a vote on his plan to raise the debt limit today.”His being Speaker is clearly at stake here,” Sen. John McCain (R-AZ) said Thursday night on Fox News.

[credit provider=”AP Photo/Carolyn Kaster”] The House of Representatives postponed a vote on Speaker of the House John Boehner’s plan to raise the debt limit Thursday night, due to a revolt from the tea party.Boehner pulled his plan off the House floor around 5:15 after it became clear he could not […]

Good morning. Here’s the news:

[credit provider=”centre for American Progress via Flikr”] The House of Representatives will vote today on Speaker of the House John Boehner’s plan to raise the debt limit and lower the deficit. Regardless of whether it passes, it is certain to fail in the Senate—where all 51 Democrats and two Independents have […]

[credit provider=”AP Photo/Charles Dharapak”] The Boehner plan is delayed, the Reid plan is waiting on the Boehner plan, and the White House isn’t sure it has a plan.Read Wednesday’s debt ceiling live-blog below.

[credit provider=”AP”] Earlier White House Press Secretary Jay Carney said the government would be releasing plans for what happens after August 2nd if the debt limit isn’t raised. Now the Treasury Department confirms.Deputy Assistant Secretary for Public Affairs Anthony Coley said the department would release its plans for what bills would […]

In addition to the stock carnage today, the most alarming action was at the short end of the yield curve, where rates have basically hugged the 0%-line for ages.

[credit provider=”gurdonark via Flickr” url=”http://www.flickr.com/photos/rasputin243/3690255919/sizes/l/in/photostream/”] According to the White House, the Treasury Department will disclose its list of spending priorities in the event the debt limit isn’t raised before August 2nd.Both the White House and Treasury have previously denied that they had the authority to prioritise payments, but apparently they […]

The Washington Post reported last night that GOP Rep. Kevin McCarthy (R-MD) showed this clip from the movie “The Town” to rally his caucus behind Speaker of the House John Boehner’s plan to raise the debt limit.

[credit provider=”AP Photo/Harry Hamburg”] Tuesday night’s announcement that the vote on Speaker of the House John Boehner’s plan to raise the debt limit would be postponed is a significant setback for the negotiations, with only days until the August 2nd deadline set by the Obama administration.Yesterday afternoon the Boehner plan […]

We’ve been live-blogging the latest developments in the debt ceiling negotiations all day.Read below for Tuesday’s developments.

[credit provider=”Flickr” url=”http://www.flickr.com/photos/medilldc/5430941803/in/photostream/”] Update: POLITICO is now reporting that the Congressional Budget Office has found that Boehner’s plan falls $150 billion short of the $1 trillion in advertised savings. This development will only make it easier for GOP lawmakers to buck their party leadership and oppose the bill.Original: A day before the […]

According to a new poll most Americans want their member of Congress to compromise to reach a deal to raise the debt ceiling and lower the deficit.

[credit provider=”Wikimedia Commons” url=”http://commons.wikimedia.org/wiki/File:Bipartisan_Congressional_leadership_meeting_February_2010.jpg”] President Barack Obama and Speaker of the House John Boehner addressed the nation Monday night on the status of the debt and deficit talks — but through the rhetoric, an outline of a deal has emerged.Their speeches didn’t change anything. While each undoubtedly helped the leaders with […]

[credit provider=”flickr” url=”http://www.flickr.com/photos/republicanconference/4056826266/sizes/l/”] Speaker of the House John Boehner’s deficit reduction plan was posted by the House Rules Committee last night, setting the stage for a vote on the bill on Wednesday.His proposal would introduce statutory spending caps for the next 10 years, and requires that Congress consider a balanced […]

[credit provider=”Flickr” url=”http://www.flickr.com/photos/nasahqphoto/4251318245/sizes/l/in/photostream/”] President Barack Obama addressed the nation on the status of negotiations to raise the debt limit Monday night, saying “the entire world is watching.”Obama devoted most of his speech to calling for both parties to compromise to raise the debt ceiling through the end of 2012.

[credit provider=”CME”] CME Group announced Monday that as part of a “normal review of market volatility,” it has determined that T-Bills should no longer be treated as risk-free when used as collateral.Haircuts on T-Bills will rise from 0.0 per cent to 0.5 per cent on Thursday, according to the statement. […]

[credit provider=”Flickr” url=”http://www.flickr.com/photos/davidsilver/5227589198/sizes/m/in/photostream/”] August 2nd is rapidly approaching, and Congress remains nowhere near an agreement to raise the debt limit and lower the deficit.We’ll be bringing you the latest on the negotiations here all day. (You can view our live blog from Sunday here.)

President Barack Obama will address the nation on the status of the debt limit negotiations tonight, according to the White House.

Senate Majority Leader Harry Reid introduced the Senate Democrats’ plan to raise the debt limit and lower the deficit in a press conference Monday afternoon.

[credit provider=”Flickr” url=”http://www.flickr.com/photos/soldiersmediacenter/2999982340/sizes/z/in/photostream/”] A senior White House official tells ABC News’ Jake Tapper that there is a 50-50 chance that by this time next week we will be no closer to reaching a deal to raise the debt limit.”We may be here as we tick down to midnight,” the official […]

It’s crunch time. Congressional leaders have at most two days to days to reach an agreement to raise the debt limit, and lawmakers have made little progress on preventing the unthinkable.

[credit provider=”AP Photo/Charles Dharapak”] Talks between congressional leaders to raise the debt limit are going nowhere fast, as the time to reach an agreement ticks away.Hopes for a deal on Sunday night quickly faded, but lawmakers continue to meet at the Capitol.

Is August 2nd really the debt limit deadline?

[credit provider=”AP”] Update: Democratic lawmakers have rejected an offer from Republican lawmakers.Original: Lawmakers and President Barack Obama met at the White House Saturday, once again looking to renew talks to raise the debt limit and lower the deficit after a highly public breakdown.

[credit provider=”AP Photo/Harry Hamburg”] Congressional efforts to remove President Barack Obama from negotiations to raise the debt limit and lower the debt ceiling failed Saturday, after Democratic lawmakers rejected a GOP offer to raise the debt ceiling in two stages.In a tersely worded statement, Senate Majority Leader Harry Reid (D-NV) […]

[credit provider=”CNBC”] David Beers will be one of the Standard and Poors executives deciding whether the United States will lose its AAA rating at the end of the month — and he has no qualms about it.”If you want your ratings to do what they are designed to do, you […]

The Federal Reserve is preparing for the consequences of the U.S. government defaulting on its debt obligations, Reuters reports.

[credit provider=”Spoiler: Click here for source” url=”http://www.designflavr.com/resources/12-Photo-Real-Computer-Generated-People-i109″] In May China increased its holdings of U.S. Treasuries for the second month in a row.Via Shanghai Daily:

Apparently, market professionals are willing to accept short-term government paper at auction with  no discount through four weeks(hat tip Matt Franko).

The “surge” in yields this week has many pointing to the end of QE2 as the beginning of the awakening of the bond vigilantes or even the beginning of the collapse of the mythical “bond bubble”.  But I went to find this “surge” in yields or “collapse” in the bond […]

[credit provider=”Yuri Obukhov via Flickr” url=”http://www.flickr.com/photos/yuriobukhov/3818579392/sizes/l/in/photostream/”] Remember when the Treasury Department modified its rules for government bond auctions two years ago? Turns out “technical modernization” was a euphemism for China buying more treasuries than it had disclosed, according to a new report from Reuters.The Chinese government buys most of its […]

Treasury yields are currently way too low, and should be between 3.5% and 4.1% on the 10-year, according to Societe Generale’s Aneta Markowska.

[credit provider=”TBI”] On my commute back from a pleasant stay in NYC, I read an excerpt of PIMCO’s El-Erian’s interview with CNN’s “Fareed Zakaria GPS” program.El-Erian went on to say: “A basic rule as an investor is don’t buy something unless you know who else is going to be buying,” he […]

In the end, when things are really getting hairy, US paper rules the day. The dollar is surging, as are Treasuries.

China appears to finally be buying less U.S. government issued debt, according to Standard Chartered (via FT Alphaville).

Russia plans to keep selling its holdings of U.S. government debt, according to presidential economic advisor Arkady Dvorkovich. 

It looks like John Paulson wasn’t the only investing legend to slam into a brick wall in the month of May.

The treasury market is signalling another summer just like 2010, where bond yields fell, world equities gained, and everyone feared a double-dip, according to Citi.

I think quite a bit about causation. Predominantly because we tend to get it wrong so often – yet find what we need in what we see. You can do quite well not worrying about causation as a trader and focus on what actually is right in front of you. Ignorance is […]

Those who believe the Chinese government is in the midst of a Treasury selloff may want to look a little deeper, according to research from Societe Generale analyst Rudy Narvas.

Yes, obvious, but still worth pointing out that the chorus of bond “vigilantes” continues to get smoked.

[credit provider=”i_yudai via Flickr” url=”http://www.flickr.com/photos/y_i/2330044065/”] A majority of investors believe the end of QE2 means treasury yields will rise, according to a poll from Bloomberg. A smaller 43% of investors believe the S&P 500 will drop as quantitative easing ends.But while 54% of respondents do believe treasury yields will rise […]

[credit provider=”via PIMCO”] In early April, Bill Gross went short US Treasuries, after warning about US creditworthiness and inflation for a long time.He got clocked on that bet. Treasuries had their best month in 8 years.

The typical thinking on Treasuries is that the whole debt ceiling/default talk is a negative.

Suddenly, Bill Gross’ short bet against Treasuries is not only looking wrong, but also unpopular.

The media still likes to portray the debt ceiling fight as a choice between “raise it” and “default” even though there are several options in between.

We got a lot of pushback, via email, to our CHART OF THE DAY yesterday, citing JPMorgan strategist Thomas J. Lee, who argued that a recession was likely not imminent due to the ongoing steepness of the yield curve.

[credit provider=”via PIMCO”] We’ve been chronicling the steady failure of Bill Gross’ attempt to short Treasuries lately, using the dubious idea that the end of QE will shoot rates higher.Well, it sounds like he’s less and less enamoured with that on.e

Oil, silver, and a ton of other commodities may be selling off today, but there’s two big stars out there everyone is running to.

A quick update on the infamous Bill Gross short Treasuries trade.

We’re a little disappointed. Bill Gross’ latest monthly letter isn’t warning of a US default or some other catastrophe.

Bill Gross’s case against bonds basically boils down to this:

With the economy so weak, and US finances (supposedly) in shambles, why haven’t government bonds blown up yet?

Jim Rogers reiterated his plan to short U.S. Treasuries in an interview with The Economic Times:

Will rates surge after QE ends?

[credit provider=”via PIMCO”] Bill Gross is back, this time popping at Bloomberg to reiterate his bearish call on Treasuries (which he’s short).This time he’s not talking default or anything quite so dramatic — he just doesn’t like how much he’s getting paid to hold onto them: “I could join the […]

[credit provider=”Bloomberg”] As we keep talking about, much of the data has been coming in on the weak side lately.The double-dip talk is back.

As one trader put it, the funniest thing this week was “the one hour when the long bond cared about Standard and Poors.”

Jim Rogers says he will short the US Treasury Market if rates keep rising (via @Alea_).

[credit provider=”AP Images” url=”http://www.apimages.com”] Since Bill Gross’ Treasury short was announced, Treasuries have only rallied gone higher.One way he could end up spectacularly right is if the debt ceiling isn’t raised and the US goes into some kind of technical default. JPMorgan recently explained how that would likely sent yields […]

Just a few days ago, PIMCO was revealed to have gone short Treasuries.

In the early part of 2010, Bill Gross said that bonds were going lower.

It’s official. The bond market is holding up a gigantic middle finger to the market, as Treasuries across the board are now HIGHER post S&P downgrade of the US debt outlook.

[credit provider=”AP Images” url=”http://www.apimages.com”] When PIMCO Total Return (symbol PTTAX), the largest bond fund in the world, not only sells, but shorts—or bets against—treasuries, it is as if Moses has descended with tablets and has a frown on his face.True to herd mentality, large bond funds like the Loomis Sayles […]

If bonds were selling off after Obama’s budget speech, you’d surely hear that the market was rejecting his weak-sauce proposal to balance the budget.

Hahaha. Of course the bond market is totally indifferent to all of this.

Just one day, but given Bill Gross’ track record when betting against Treasuries, we thought we’d point it out…

[credit provider=”AP Images” url=”http://www.apimages.com”] Last month bond giant PIMCO officially abandoned Treasuries completely.In the meantime, its chief Bill Gross has been warning of a US debt default, while wondering who would stick around to buy Treasuries following the end of QE2.

Republicans and Democrats have yet to come to deal on the budget, and now a government shutdown may hit this weekend.

With QE II now certain to end in June, the question is what buyer will enter the market place to replace the Federal Reserve?

[credit provider=”Tech Ticker”] In an interview this week with Reuters, PIMCO’s Mohamed El-Erian said his firm might get back into Treasuries if they got cheaper.This came a day after his PIMCO partner Bill Gross predicted “default” in America.

If you’re ever wondering who gets the most upset when the U.S. devalues the dollar, here’s a quick visual guide from Societe Generale.

PIMCO’s Mohamed El-Erian says his firm sold out of its U.S. treasury position because it has no idea who will be buying the investment at current prices after the end of QE2.

[credit provider=”gruntzooki on flickr” url=”http://www.flickr.com/photos/doctorow/1371720114/”] It’s one of the most shocking behavioural displays I’ve seen in my (now long) life. Market participants are wandering in a jungle ignoring all the warning sights and sounds.As a big believer in the rational-thought approach to events, I will be the first to admit […]