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’Economics, a space opera
FT Alphaville would like to survey the following statement:
Economists are failing to account for mass technological innovations when making forecasts and constructing models.
Agree/disagree.
And we don’t just mean critiquing the Fed’s new long-range forecasts.
We want negative Treasury yields
Interesting exchange in the latest minutes of the TBAC – Treasury Borrowing Advisory Committee, which brings together primary dealers and US Treasury officials… (Hat-tip Bondscoop)
The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions.
Awaiting the MBS settlement fail fee
It’s been a while since FT Alphaville looked at settlement fails, but the following chart from RBC Capital Markets did catch our eye this week:
As RBC notes, there’s a new settlement failure fee coming into force in the US for MBS securities on February 1,
Marc Faber on why equities are better than ‘safe assets’
Marc Faber, publisher of the Gloom, Boom and Doom report, tells Bloomberg TV on Friday (our emphasis):
I wouldn’t say they are particularly attractive but, look, I am in Switzerland at the moment. The 10 Year government bond yields is 0.7% and you can buy quality companies and they have a dividend yield of maybe 3%.
The central bank Treasuries dump is not about Twist
“Are foreign central banks rejecting Operation Twist?”
That’s the provocative question asked in a note by RBS strategists this morning — and while the answer is “no”, the rationale for it is both intriguing and touches on some interesting developments happening around the globe.
The not-so-fearless Fed?
The narrative around the Fed’s announcement on Wednesday is that it went ahead with a $400bn ‘twist’, towards the larger end of what was expected — despite some pretty heavy pressure from the Republicans a couple of days earlier.
Treasuries are the new gold
We’ve talked a lot about how US Treasuries have arguably become a *type* of Giffen, Veblen, choke-price resistant good/asset (pick one) since about mid-August this year.
A date which happens to coincide with the return of over-riding deflation fears,
Why cutting IOER could be suicidal
By Jove! Someone’s finally got it.
Cutting interest on excess reserve is a hugely risky option for the Fed, and could do more damage than good (leading even to major systemic issues). We’ve said as much,
Some extremely special Treasuries
Here’s an interesting datapoint Fred Sommers, of the Basis Point Group, on Monday.
As we’ve written before, Sommers is among a number of back office specialists who have become increasingly concerned about a growing lack of discipline in trade settlements since 2008.
Treasuries, Lehman-fied [updated]
If there’s a chart to encapsulate Thursday’s market panic:
It’ll be the 10-year Treasury yield falling under 2 per cent. That’s breaching the lows seen in 2008 after Lehman Brothers collapsed. We’re checking when Treasuries were last this low,
Was the 30-year UST auction really that bad?
The 30-year US Treasury bond auction spooked the market on Wednesday, seeing yields fall massively on the long bond, because the yield achieved was 3.75 per cent versus a yield of 4.375 per cent in May.
Quantitative greasing of another kind?
Title shamelessly stolen from Chris Cook, who’s applied the term to the IEA’s “easing” of tight oil markets by releasing reserves.
What we refer to though is the direct depression of bond yields, via the sheer weight of petrodollars (for example Saudi Arabia’s gigantic foreign assets) recycled into buying those bonds.
And so farewell, QE2
The last QE2 open market operation: $12.47bn of Treasuries tendered by primary dealers, $4.91bn accepted by the Fed, $4.4bn of which was yesterday’s new seven-year bond.
As highlighted in FT Alphaville’s tombstone (data via Reuters):
What to do with all that cash?
Use it as collateral of course.
We refer, of course, to the massive cash reserves built up by banks due to quantitative easing. Reserves which, as most deflationistas point out, have been stuck firmly on banks’ balance sheets rather than making their way through to the real economy — thus supposedly having little inflationary impact.
SOMA helluva change at the New York Fed
A big thank you to Shyam S. Rajan at Bank of America Merrill Lynch’s US rates team, for drawing our attention to this subtle yet significant change at the New York Fed on Wednesday:
The Federal Reserve Bank of New York’s Open Market Trading Desk is making the following change to the System Open Market Account (SOMA) securities lending program:
The T-bill that broke America’s credit [updated]
Hypothetically, obviously. At this stage.
Its CUSIP number is 9127953B5.
It was issued on 2 March 3 February 2011.
And it currently pays investors a princely yield of 0.018 per cent, for the (ahem) ‘risk’ of holding it.
To (settlement) fail, or not to fail
Settlement fails are on the rise and many are beginning to worry about the systemic implications associated with a market culture that routinely shuffles the problem under the carpet. Particularly, they worry that fails are beginning to migrate to new asset classes,
A large dislocation in the repo markets
We all remember the Fed’s sort-of promise to abide by self-imposed System Open Market Account (SOMA) restrictions — supposedly, so as not to completely corner the US Treasury market.
Well, according to Bank of America Merrill Lynch’s Shyam S.
A warning signal from the Bund/Treasury spread
This sounds a bit disconcerting from Charlie Diebel at Lloyds TSB on Wednesday:
One of our key comparative metrics is flashing Red this morning and that is in the 10yr Bund/T-Note spread. Our models have
A big Treasury short
US Treasury repo rates are back in negative territory.
According to Reuters, both 10-year and 30-year bonds are currently trading “special” in the general collateral market.
The 10-year’s repo rate to March 15 was quoted on Tuesday at minus 45 basis points,
Further further reading
For the commute home, or while marking your over/under on tomorrow’s payrolls number,
- Banks’ litigation losses in tabular form.
- 200 years of treasuries.
- PE conference attendees say that PE firms add value some of the time.
UpTIC in China’s treasury holdings? Sort of
The US treasury department has published the preliminary results of its annual revisions to foreign holdings of US securities.
In chart form, with an explainer to follow:
The US treasury department publishes monthly estimates of these numbers based on interviews with US financial institutions.
Gaddafi’s market – US edition
Spotted: Vix, the ‘fear gauge’, up nearly 28 per cent on Tuesday.
A 2011 Egyptian revolution-encompassing high. (Though still way below 2010 eurozone-crisis levels.) According to VelocityShares,
Beware the special US Treasury market
FT Alphaville has been keeping an eye on the composition of the Federal Reserve’s US Treasury purchases for a while.
It’s important to watch because the more the Fed buys of any particular issue, the less of a free float is available for everybody else — a fact which may skew pricing or encourage a security’s so-called ‘specialness’ in the market.
Housing and jobs – a bit better but still bad
The two ugly sisters of the US economy’s fairytale recovery reared their heads in data releases Thursday morning.
First up, housing starts. Release from the Commerce Department:
NEW RESIDENTIAL CONSTRUCTION IN NOVEMBER 2010 The U.S.
Bonds: Bubble, bubble, toil and trouble
After this week’s mass sell-off in Treasuries, debate is still raging about whether this is a bursting bond bubble — and whether we should all be stampeding into equities and out of commodities (or even,
The (mostly) unrevealing FOMC minutes
The FOMC minutes contained little that was new or shocking, mostly confirming what was already known.
The committee reduced its forecasts for growth and inflation in the next three years, and increased its forecast for unemployment.
Soma confusion in US Treasuries
As part of QE2, the Fed relaxed its System Open Market Account (Soma) limits restricting it from buying more than 35 per cent of any single issue in US Treasuries.
Sort of.
Because the actual statement reads rather weirdly: