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US Treasuries on the brink of collapse

Michael Gove spent most of the weekend stating the obvious. Commenting on the British exit of the EU pointed out that the UK would be in a better place to negotiate bilateral trade agreements outside of the EU. Many were cooing that this would leave the UK vulnerable to accepting poor deals having been thrown to the wolves by our former European friends.

The Guardian managed to talk some sense despite even more talk of the referendum. Stating that the British exit isn’t to blame for slowing UK growth. The assumption that spending and investment decisions are being delayed as a result of the uncertainty is not necessarily incorrect. However it is certainly not the sole reason for the slowdown in the economy, but it is rather convenient for Mr Gove and the rest of the tory party.

When scrutinised a little further it is hard to see how the threat of leaving the EU is responsible for the increase in unemployment by 21,000 in the latest figures. Particularly given that the period covered Nov 2015 to Feb 2016, and it was only at the end of the latter month that the referendum was announced.

The political clothes horse that the referendum as well as being a great means of explanation for inadequacy is also being used as an excellent means of whipping up hysteria. Adam Posen, former BoE policy maker is causing trouble, saying “Brexit will trigger a pseudo-sterling crisis”. Perhaps former member Posen, would do better to focus on the real rather than pseudo sterling crisis. Which will doubtless get worse as the BoE will almost certainly consider slashing rates further regardless of the way the vote goes. Thursdays inflation report promises to be a lot more juicy than normal and we are waiting with baited breath.

Plates are shifting in the energy world as Saudi Arabia sack the old oil minister and bring in a new one, Khalid Al-Falih who has also been appointed as Chairman of Aramco. Aramco are gearing up for the largest offering in history with a cheeky $2trillion raise. Al-Falih has committed to maintaining stable petroleum policies as well as meeting existing and additional demand.

Particularly worrying was a report from Reuters over the weekend over the “doom loop” which caps the amount of sovereign holdings, government debt managers are seeing less liquidity and a decline in numbers, ultimately no one can offload as much of this paper as they used to. The US are also facing a huge crisis, with the Fed’s Charles Evans urging the Give to make trading in US treasuries safer, I thought it was supposed to be the safest thing in the world?

The arena is all but unregulated with only 50% of treasury trades in the core part of the market being centrally cleared. When a Fed member begins to state that things are out of control, firstly it is too late and secondly we should think about panicking a little. And once treasuries turn to junk, which they will, they already are, it is simply trust and flow that keeps them above water but rest assured they are twenty thousand leagues under the sea. And that’s not a sea of water either.

The week starts with the Fed’s Evans speaking further on the matter above.otherwsie the highlights are this Wednesday with BoE rate announcments and MPC followed by Eurozone GDP on Thursday.