The Phaserl


Under The Surface

from TF Metals Report:

While the computer-derived paper price of gold continues to be jerked around by the whims of the Forex algos, I thought I’d bring to your attention some far more important items that are bubbling just beneath the surface. Let’s start with a seemingly unrelated story. Did you see this today at ZH: It contains this chart: Though of us who follow gold should be able to immediately recognize this for what it is, having seen it about a million freaking times through the years. NO DOUBT this is a timed algo trade, meant to influence and direct the Long Bond market. The questions become: Who and why?

  • Who? To move a market as large as the T-bond futures market, you need some real heft…this ain’t your average hedge fund. Instead, this is very likely The Fed itself acting through its network of Primary Dealer accounts.
  • Why? How many times have I mentioned that The Fed can’t raise short rates without the risk of flattening, or even inverting, the yield curve? Solution? If you can raise the long end by 25 bps, you can raise the short end by 25 bps, too, with no overall change to the curve.

And, to me, that is definitely what you’re seeing here. A Fed, desperate to raise the Fed Funds rate in order to promote “normalcy” and “dry powder”, attempting to manipulate long rates higher in order to create the “space” needed to raise the Fed Funds rate in June.

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