The trouble in BOA-CW deal came at interesting moment. As I’ve noted here, the T-bonds are at the most critical juncture in 10 months. Too much complacency (VIX sub 20 for a while) and too much T borrowings are about to produce a major T-bond “sell” signal.
There are three major buyers of T-bonds: domestic investors looking for safe heaven, FCBs and speculators. If the chart bends the third group will be out, the first group will shrink. The T-bonds will fall until they find a firm support, but that could be a disaster for the economy.
I’ve demonstrated my concern. Now Bernanke needs to show his concern. The very good and sure way to save the treasury market will be to let Countrywide to fail. They are not so important for the economy and it would be a fair price to save the rest of us. Think of it as of timely sacrifice