Posts tagged 'Treasuries'

Rate expectations

How much forecasting, we wonder, amounts to ‘the present, plus or minus a bit’.

Not because it is a bad way to make predictions, rather that if there has been little change for a long time in something like benchmark interest rates, the expectation for change itself is likely to shrink. Eventually it becomes hard to imagine anything much different from the present at all.

Thoughts which arise thanks to Gary Jenkins, Chief credit strategist for LNG Capital, who draws our attention to an unscientific poll taken at the recent European Leverage Finance Conference. Read more

Video: Different tales in stocks and bonds

A likely quiet week lies ahead after trading holidays in the UK and US, and with limited data releases on the calendar. The FT’s Mike Mackenzie and I have a look at the US markets where the S&P closed at a record high on Friday but the pace of gains has slowed to a crawl.

A dash for cash and a grope for volatility

Here is how a (now very sad) institutional investor was positioned during this year’s rally in bonds, commodities and equities according to Michael Hartnett’s latest Thundering Word at BofAML:

Very simply portfolios were positioned, in an extreme way, for Higher Growth-Higher Yields-Higher Dollar, and that backdrop is yet to transpire (Portfolios were also positioned for sub-7% China GDP and that also didn’t happen). Investors long Small Cap, Tech & Banks and short Gold, Government Bonds and Emerging Markets have been hammered.

More to the point, says Hartnett, those reeling institutional investors have been rushing into cash as their performances suffered. That was helped in no small part by the rally in Treasuries: Read more

The sun also rises. Bond yields, not so much

Some broad thoughts on the economic and market cycle arrive from Nikolaos Panigirtzoglou and team at JPMorgan, to help active investors (most of them, it seems) who are scratching their heads and looking perplexed.

Despite range trading and low market volatility, active investors feel extremely uncertain about markets. Very few have beaten their benchmarks and our model portfolio also is barely in the black YTD.

Some charts will help below but the central question is why, five years into a US expansion, have bonds not sold off more? Read more

Shorting rates for fun and profit

So, dear sceptic, you think that interest rates will go higher. Prices for debt will fall, meaning a wonderful opportunity to bet on what must occur. Easy.

Except it turns out that trading a bear market in bonds is hard. By way of example, BofA Merrill Lynch offer up the last rate tightening cycle that began on June 30, 2004. Imagine you decided to go short exactly a year beforehand.

During that period, 10y Treasury yields rose 117 basis points. However, once adjusted for negative carry and roll-down, an investor would have made only about 70bp, assuming a short position in 10y Treasuries was established on June 30, 2003 and held it for the next year.

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If only we had known

Correlation, causation, or Rorschach test we’re not sure, but the latest from BoA ML strategist Michael Harnett leads with a quite remarkable chart.

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Steady state of the great rate wait

Rainbows are always just over the horizon, the recovery is around the corner, and interest rate hikes are always two years away.

That timescale tends toward the far enough that we won’t start to discount it just yet, but close enough that we can claim to be anticipating it. (Who cares what happens in three years time, anyway?) Read more

Falcons in the gyre, or something. A second coming and how Pimco works

Given that a certain Secretariat of the world’s biggest bond fund has attracted some attention of late, lets give the newest investment outlook from Pimco’s Bill Gross the once over.

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Does Pimco know something we don’t?

On Sunday Pimco issued an intriguing tweet from Bill Gross, the undisputed King of the bond mountain.

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Bouncy Bunds and jumping JGBs, the rate volume watch

The whole we’ll taper soon, oh no, actually not yet behaviour from the Federal Reserve last summer had, as you would expect, an impact on the volume of US treasury trading.

But it didn’t last. JP Morgan reports that monthly trading volumes of $2tn in April rose to an average $2.7tn in May and June, then dwindled with overall volumes for the year actually down on 2012. What might surprise, however, is that the post crisis decline in volatility for Treasuries (and many other securities) has not been seen in German Bunds and Japanese sovereign debt. Read more

Where art thou inflation?

Bond vigilantes might want to turn away. The following analysis is not pretty for those who have bet everything on a taper-related spike in US yields.

As HSBC’s Steven Major notes on Friday, he is doubtful that the short-term path for US yields will be anything other than lower.

Key to his analysis is the fact that growth and inflation are disconnecting in an unusual way:

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The Fed and Treasury default: a coda

At some point in the great collective peyote dream that was last month’s debt ceiling crisis, we asked you to imagine the Fed buying defaulted US Treasuries.

Fortunately, the US central bank was thinking about it too. Read more

Imagine the Fed bought defaulted Treasuries

Every Federal reserve bank shall have power…

…To buy and sell in the open market, under the direction and regulations of the Federal Open Market Committee, any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.

Section 14.2(b)2, Federal Reserve Act

Now, reading that carefully

Does that mean the Fed can’t buy defaulted US government debt? Read more

Breaking the full faith and credit, vs breaking the buck

Just for the record, FT Alphaville thinks of ‘technical’ default as one of those weasel words.

Still, some interesting comment from Fitch on Wednesday, on whether defaulted US Treasuries could still call the $2.694trn money market fund industry a home: Read more

Floating Treasuries, finally

If you really, really want to see the US Treasury’s final rule on its issue of floating rate notes (from the beginning of next year, using 13-week T-bills as a reference rate) — here.

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The QE repo distortion is uncharted territory for funding markets

Scott Skyrm noted on his blog earlier this week that it took only six months of Fed QE purchases to move GC rates from an average of 0.24 per cent in December 2012 to an average of 0.05 per cent this month.

There is, consequently, a growing distortion in the short-term funding markets, which is clearly one of the first unintended consequences of the QE programmes to surface: Read more

The Great US bond sell-off, Carib account edition

Presenting, the latest US TIC flows as put together by Gennadiy Goldberg at TD Securities:

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The US yield move and the China premium

What’s really responsible for higher US yields? Falling demand from domestic and western investors? Or Chinese and Japanese official flows?

Earlier in June, TIC data sent us a very important message. Abenomics was somehow prompting the repatriation and redistribution of money held in long-term USTs by Japanese investors, as this chart from Nomura shows:

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Clock still running on tin hat time, US 10-year treasury yields edition

Now north of 2.5 per cent:

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Too QEunwind

Yes yes — suddenly, a bad last day of May for the stock market:

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The interbank repo effect and gold

Here’s an interesting thought. Could the gold sell-off be related to a squeeze on collateral brought on by a series of very different bank crises in Europe, starting with the SNS Reaal nationalisation and Anglo Irish emergency assistance operation and culminating with the Cyprus crisis?

It’s a theory being considered by Jeffrey Snider, chief investment strategist, at Alhambra Investment Partners.

The basic point being, when you haven’t got anything to repo and funding becomes tight, gold is likely to sell-off in anticipation of further banking and asset problems. Read more

Doubting the bull market in Treasuries is over…

US Treasuries are kicking up with the 10 year threatening to push through 2 per cent for the first time in quite a while. It’s a little bit of economic optimism — better data means more chances of Fed tightening.

Capital Economics did the needful and put voice to the idea that the bull rally in Treasuries might have further to run for all sorts of not very contrarian reasons (our emphasis): Read more

The end of RoRo, or is it?

Last week, Kit Juckes at SocGen was one of many analysts who, after looking at the latest FOMC minutes, found fit to arrive at one overriding conclusion: the era of Risk-on, Risk-off (RoRo) investing is arguably coming to an end.

As he explained… Read more

HSBC: Don’t say printing!

This is reassuring (or not – we can’t decide). The Global fixed income strategy team at HSBC *believe* they’ve come up with a non-consensus view on the effects of QEternity:

Our non-consensus view is that QE3 will drive US Treasury yields to new lows Read more

QEternity, the FDIC guarantee, liquidity and a pumpkin

Okay, who’d forgotten that FDIC deposit insurance for non-interest-bearing transaction accounts expires at the end of December?

We confess, it did slip our minds – momentarily. Read more

Great Tips-pectations

US 10-year Tips breakeven rates are surging, and talk of a revival in inflation expectations is, understandably, doing the rounds.

But we’re not entirely convinced that it is that simple. Read more

The Pentagon: also not worried about China and USTs

Bloomberg writes about a report by the US defence department to Congress about Chinese holdings of US Treasuries, and has helpfully uploaded the document itself (click below to open in pdf):

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The right swap

Arvind Krishnamurthy and Annette Vissing-Jorgensen have an interesting variation on what the Fed should do next: start buying MBS while selling longer-term Treasuries.

Buying MBS, of course, has been widely discussed as a potential option if the Fed chooses to begin another round of large-scale asset purchases, but Krishnamurthy and Vissing-Jorgensen are the first economists we are aware of to advocate also dumping long-term Treasuries. Read more

Directly Treasury

The US borrowed for 10 years at the lowest rate ever in Wednesday’s auction (technically a reopening of an existing bond).