The 30 Year US Treasury Bond Auction Failure that Wasn’t But Was

On Thursday, November 9, 2023, the United States Treasury department under the sterling leadership of one Janet Yellen got a taste of what a failed US Treasury bond auction would look like. The solution to the problem?

Blame a nebulous hacker that allegedly infiltrated a major Chinese financial institution for the problem.

Via Bloomberg TV:

And if any of my readers believe that, I have some gold plated tungsten bars from Xinjiang to sell you as 24K gold bullion.

The media immediately ran with the US Treasury and Federal Reserve narrative:

I’m not saying there were not hackers. But the “drama” pushed by the financial bubblevisions in America to cover for what really was a failed auction really speaks volumes to just how fragile the US financing system for our government truly is.

In fact the Reuters story at the bottom of the screenshot above makes this sound like the world was coming to an end per this excerpt:

Industrial and Commercial Bank of China’s hack left its U.S. unit temporarily owing Bank of New York Mellon $9 billion as a result of unsettled trades, prompting the parent to inject capital into the unit to settle the trades, sources familiar with the matter said.

BNY has since been paid back, the sources said.

The attack, confirmed by ICBC on Thursday, is the latest in a string of ransom demands by hackers this year. ICBC Financial Services, the bank’s U.S. unit, said on Thursday it was investigating the attack that disrupted some of its systems, and making progress toward recovering from it.

Note this part of the story: “the sources said.”

No direct quotes. No factual presentations. Just “yeah were were hacked” but “yeah we made good.”

But $9 billion of unsettled trades is not enough to actually influence a 30 year US Treasury auction which was only $24 billion in total was enough to derail an auction?

This brings up the big question:

Why the narrative to divert attention from a lack of demand?

Bond markets, like equity markets, are build on confidence of either future growth (equities), or the future ability to settle or pay debts as issued via bonds. If the world, or the US investing community loses faith in the bond market, things get very messy, very, very, fast.

Rick Santelli gave it the perfect grade and without saying it was a failed auction, gave it a D- for a grade which is the polite way of saying, it was a failed auction.

US 🇺🇸
30-year bond waning demand
In this video, watch Rick Santelli to the end when he asks a key question about bad 30-year bond auction yesterday. That tells you everything you need to know about the state of things. It is all about rapidly rising deficits and waning demand. pic.twitter.com/p9y1job81S

— Oumar Sissoko (@Oumar_Sissoko_1) November 10, 2023

Thus the reality is why blame the Industrial and Commercial Bank of China on a failed bond auction?

Let’s lift the hood on this sucker and see why. If one actually spends more than 3 seconds of their attention span and READS the ICBC annual financial report, one would realize they really are not as big a player in the US Treasury market as one might think.

The ¥ 559,753,000,000 in US denominated bonds on hand at the end of 2022 is 5.6% of their entire portfolio. As illustrated above, that is only $76 billion dollars which includes corporate bonds, MBS (Mortgage backed securities-probably leftovers from over a decade ago) and other dollar denominated instruments.

The reality is that the Chinese banks are reducing their holdings of US denominated bonds, especially corporate issues, but still rolling over US bonds into T-bills and shorter denominated issues.

Thus the bubblevisions are trying to push the narrative that the lack of demand for US Treasury bonds was not due to inflation and the loss of faith in the Federal Reserve and our Political leadership, but due to a “hacker” creating a processing problem for transactions between Wall Street and Beijing.

If one wants to continue believing in sunshine and lollipops, please go right ahead. But with primary dealers taking down almost 25% of this week’s auction, it was a failure in everything but name only.

Buckle up, the turbulence is about to get far, far worse as the Fed’s most recent blunder will cost the markets far worse than missing two 25 bps rate increases to contain the upcoming inflationary outburst ever will.

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