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Posts tagged 'Treasuries'
On Sunday Pimco issued an intriguing tweet from Bill Gross, the undisputed King of the bond mountain.
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
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:
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
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
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:
Now north of 2.5 per cent:
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
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
It’s not perfect, we know. But the weekly CFTC derivative positioning report is still a useful barometer when it comes to gauging investor sentiment.
On which note here’s the breakdown of the latest report with respect to UST spec positioning, courtesy of TD Securities: Read more
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
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
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
The US borrowed for 10 years at the lowest rate ever in Wednesday’s auction (technically a reopening of an existing bond).
It is impossible for all investors to be invested in safe assets all at the same time.
That’s because risk can never truly be eliminated. It can only be transferred or managed. The more people pour into “safe assets” at the expense of “risky assets”, the more they transfer risk into the original “safe asset”. Read more
As noted in the February quarterly refunding statement, Treasury believes that there are benefits to issuing floating rate notes (FRNs). In recent weeks Treasury has received a significant amount of feedback on the topic, in part through a formal request for information published in the Federal Register. Read more
Professor Lew Spellman, from the McCombs School of Business at the University of Texas at Austin, has posted on on what he calls gold’s changing role in the global economic landscape.
Amongst other things, he says the epic hunt for “safe collateral” — which has driven down yields on traditional fixed-income investments in the process — is the direct result of there being too many debt liabilities/obligations relative to safe collateral in the system. Read more
Fitch Ratings’ report on repo and shadow banking from February 3 has just been posted on the Fitch Ratings website — available to all who sign up for a login.
While its key themes were covered extensively by our FT colleagues back in February — namely that the use of lower-rated debt as collateral had returned to pre-crisis levels — one table buried deep in the report did catch our eye: Read more
Something on the Treasury sell-off last week from RBC’s Michael Cloherty, which we found interesting… it’s another theory about what caused the selling, and whether it’s ‘the big one’ for risk.
We noted earlier that during the sell-off, the yield curve flattened, i.e. the rise in yields on longer-dated bonds was more or less matched at the short end. Whereas you might expect (say) 30-year Treasuries to be particularly sold off, if a fundamental paradigm shift in real rates is suddenly here. So – Cloherty says the selling of short-dated bonds reeks of a carry trade being closed out. Read more