Scott E.D. Skyrm, repo specialist and author of an upcoming book on MF Global, presented an interesting repo chart on his blog this week:
As the chart shows, so-called GC repo rates are once again trading below the Fed Funds rate. Read more
In March we noted that the Federal Reserve had issued a request for information on who is holding large positions in the 2023 US Treasury note, following reports that the issue was experiencing repo difficulties. Not only was the issue trading in negative territory in the repo markets, there were reports of significant fails.
As ever with repo markets, information was scarce. Given the risk-on sentiment at the time, this seemed strange. Read more
A hat tip to John Kemp at Reuters for drawing our attention to this from the US Treasury on Friday:
WASHINGTON – The Treasury is calling for Large Position Reports from those entities whose reportable positions in the 0-3/4% Treasury Notes of September 2013 equaled or exceeded $2 billion as of close of business Wednesday, December 8, 2010. This call for Large Position Reports is a test. Entities with reportable positions in this note equal to or exceeding the $2 billion threshold must report these positions to the Federal Reserve Bank of New York.
The disconnect we’ve noticed between commodity fundamentals and forward rates appears to be popping up in other asset classes as well.
Priya Misra, rates strategist at Bank of America Merrill Lynch, makes a very interesting point on Friday about what she sees in her sector. 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
Take note. This is an important observation from TD Securities, especially in light of all the talk that US Treasury/safe haven trades are dead in the water.
Our emphasis: Read more
In case you missed the moment earlier on Monday, here’s the yield on US 10 year paper breaking through 2 per cent – albeit momentarily. At pixel the reading stood at 1.99… Read more
We made the case a few weeks ago that the gold price may have reached its choke level and that it was arguably capped from that point on. One good indicator of this, we noted, was the divergence between the gold price — which had been flat-lining for some time — and real interest rates.
It’s also hard to ignore gold’s reaction to the latest Fed announcement, which has been intriguingly bearish to say the least Read more
What we love about Bank of America Merrill Lynch’s ‘Liquid Insight’ team is that when they make calls on Treasuries and rates, they account for the impact of collateral markets and the repo effect — not to mention the general shortage of safe assets.
Take the following chart from their latest note: Read more
As we noted earlier, the People’s Bank of China is continuing to inject huge sums of liquidity into the monetary system via so-called “reverse repos” (the equivalent of conventional central bank repos elsewhere). According to Chinascope, the latest round of easing supplied a record Rmb220bn to the market in exchange for collateral.
The seven-day operation was priced at 3.40 per cent (Rmb150bn) while the 14-day operation was priced at 3.60 per cent (Rmb70bn). Read more
Low yields in the context of epic supply may baffle some people, but not UBS’s Chris Lupoli.
Lupoli, part of Global Macro Team, seems, if anything, to subscribe to our negative carry shift theory — the idea that a more permanent curve transformation may be under way. Read more
Most of the fear of what might happen if the US goes over the proverbial fiscal cliff has concentrated on the size of the economic drag it would produce.
But as you might have guessed for a blog that has long worried about the effects of a decline in safe assets on trust in financial intermediation, shadow banking liquidity, collateral shortfalls in money markets, etc… we also think it’s important to look at what it would mean for the corresponding decline in US Treasury issuance. Read more
It was inevitable that the abysmal payrolls report last Friday would make louder the calls for another round of quantitative easing from the FOMC, which meets later this month.
QE can take various shapes, but we wanted to mention something about the specific idea of the Fed buying up more US Treasuries: as a few analysts have pointed out recently, there’s a pretty good chance that rates will stay low no matter what the Fed does. Read more
Goldbugs don’t just believe in the fundamentals of gold. They worship at the altar of gold.
The goldbug view represents a market philosophy, a doctrine and a belief-system. Read more
1.697 per cent at pixel time. Worries about Europe, collateral crunching, people changing their minds about buying Facebook (which, by the way, priced at $38 a share)… take your pick. Read more
Hey, remember when China was net-selling US Treasuries and drawing down its FX reserves? …
That was so December 2011. This hasn’t been widely discussed in recent days amid the higher-profile news that Chinese growth in Q1 decelerated by less than expected and the RMB was allowed to trade in a wider band, but: Read more
FT Alphaville has written plenty of “explainer”-type posts on the relative accuracy of the monthly Tics data — i.e. who holds US Treasuries — versus the annual revisions (listed below if you’re fantastically bored).
Since it’s late in the day and we’re feeling lazy, we’ll risk charges of navel-gazing and just quote ourselves from last year’s edition: Read more
Pimco’s Bill Gross has increased his holdings of Treasuries to the highest level since July 2010, a year after banishing US government debt from the world’s biggest bond fund, reports Bloomberg. Mr Gross boosted the proportion of US government and Treasury debt in Pimco’s $250.5bn Total Return Fund in January to 38 percent from 30 per cent in December, according to a report placed on the company’s website. He raised mortgages to 50 per cent, the highest since June 2009, from 48 per cent in December. Read more
Disappointment that the weekend failed to deliver a Greek debt deal was helping to keep recent risk asset optimism in check on Monday, the FT reports. The FTSE All-World equity index was flat, industrial commodities were mixed and some funds were moving into US Treasuries, nudging the 10-year yield down from two-week highs, off 1 basis point to 2.01 per cent. With many Asian markets closed for the lunar new year holiday, Europe inherited a generally lacklustre session. One standout feature was a burst of buying in Japan-based gold futures, which has helped the cash market to breach resistance at $1,666 an ounce. The bullion was now up 0.9 per cent to $1,673 an ounce. The FTSE Eurofirst 300 index was down just 0.01 per cent, supported by New York’s close at session highs on Friday. Read more
Many of the world’s central banks are offloading US Treasury bonds a record pace, the FT says. Of the $10tn in outstanding US Treasuries, foreign holders account for some 48 per cent of the market, with official investors such as central banks a significant presence. Since late August these investors have cut their Treasury holdings by $95bn, with $68bn sold in the past six weeks as the dollar has strengthened and emerging market economies have experienced outflows.Sales by foreign central banks, though, have been overshadowed by the Fed’s buying under its “quantitative easing” programme, the eurozone crisis propelling investors to the relative safety of US sovereign debt and proposed capital rules pushing US banks to own more government bonds. Bloomberg also looks at the latest Tic data, saying China reduced its holdings of Treasuries in November for a second month, shrinking by 0.1 per cent to $1.13tn, while holdings of Treasuries by UK buyers, who are often seen as a proxy for Chinese investors operating away from the mainland, rose to a record after declining in October for the first time since June 2010. Read more
Traders were so far delivering a mixed and indecisive global session after the Federal Reserve left policy unchanged amid lingering eurozone worries, the FT reports. The FTSE All-World equity index was down 0.4 per cent and industrial commodity prices were mostly softer, with copper off 1.1 per cent to $3.40 a pound and Brent crude dipping 0.6 per cent to $108.80 a barrel. Wholesale risk aversion was certainly not the predominant theme, however. Gold was rebounding 0.3 per cent to $1,636, after tumbling nearly $80 in the previous two days. The dollar index, which tends to display an inverse correlation to investor optimism, was fractionally lower – though still near 11-month highs – while US Treasuries were also seeing some profit taking after their good run, nudging up yields. Meanwhile, the FTSE Eurofirst 300 was down 0.4 per cent, but S&P 500 futures pointed to Wall Street adding 0.3 per cent at the open. Read more
The US congressional committee responsible for striking a deficit reduction deal ended its work without an agreement on Monday, delaying any solution to America’s debt problems and setting the stage for a sharp clash over budgetary policy ahead of the 2012 elections, the FT reports. The announcement by Representative Jeb Hensarling and Senator Patty Murray, the Republican and Democratic co-chairs of the panel, came just after the close of trading on US financial markets on Monday, prompting a wave of disappointed reactions from across the political spectrum and business. The failure of the committee also stoked fresh concerns that political gridlock could diminish the prospects for passage of economic stimulus measures to prop up the world’s largest economy in 2012, and threaten a partial government shutdown as early as next month. Mr Hensarling and Ms Murray sought to strike a conciliatory note in their joint statement. “Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” they said. Read more
The US Treasury would accommodate a possible Federal Reserve stimulus to drive down long-term interest rates, the FT says, citing a person familiar with the Treasury’s thinking. The effectiveness of ‘Operation Twist’ would depend on how the Treasury reacted. If it pushed the other way, and took advantage of the Fed’s buying to sell more long-dated debt, then it could minimise the effect on interest rates. However, the Treasury would be unlikely to respond to falling long-term interest rates with a sudden shift in the pattern of debt issuance, even though one of the Treasury’s strategic goals is to increase the average term of the US national debt. Read more
Equity markets ended another volatile week with sentiment somewhat soured by worries over politicians’ and monetary guardians’ strategy for dealing with a weak global economy and the eurozone fiscal crisis, the FT reports. The FTSE All-World equity index was down 0.6 per cent following a 0.7 per cent drop for the Asia-Pacific region and as the FTSE Eurofirst 300 declined of 0.7 per cent. S&P 500 futures suggested Wall Street would open flat. Such caution and indecision could be seen across asset classes where mixed signals were being sent on the market’s attitude to risk. So, while the perceived haven of gold was higher, another bolt-hole, US Treasuries were slightly weaker, with benchmark yields up 2 basis points to 2.0 per cent. In commodities, copper was down 0.7 per cent to $4.10 a pound, but Brent crude was up 0.3 per cent to $114.94 a barrel. Currencies were little changed, though the risk aversion in equity markets was seeping into forex with the Aussie dollar paring gains, the US dollar index up 0.1 per cent and the euro down 0.1 per cent to $1.3864 after Thursday’s 1.5 per cent slide. Read more
Treasuries have gone through the looking glass.
As we’ve discussed, it’s largely because market participants have become overly obsessed with holding safe-haven securities, demanding Treasuries and nothing else. Read more
Markets were cautiously positive, with traders apparently reluctant to chase the previous session’s rally with the same vigour ahead of a slew of headline risks, the FT’s markets overview reports. The FTSE All-World equity index was up just 0.03 per cent as Europe opened with a 0.2 per cent loss and after the Asia-Pacific region added 0.1 per cent. The commodity, forex and sovereign debt sectors were exhibiting greater wariness. Traditional havens such as the US 10-year note werestronger, nudging the yield down 2 basis points to 2.02 per cent, while the dollar index was up 0.2 per cent and the euro was down 0.1 per cent to $1.4077. Niggling concerns about global demand saw copper dip 0.2 per cent to $4.11 an pound, leaving Brent crude down 33 cents at $115.47. Meanwhile the gold bugs were “bargain” hunting, the precious metal rebounding 1.5 per cent after Wednesday’s 3 per cent dive. S&P 500 futures pointed to Wall Street’s benchmark index giving back 3 points of Wednesday’s 33-point, or 2.9 per cent, surge. The rally had come as investors felt the slump at the start of September – the S&P 500 fell 4.4 per cent in three sessions – had been overdone. Some slightly better macroeconomic data and an easing of tensions in the eurozone after the German constitutional court allowed Berlin to participate in the bloc’s various bail-outs, added juice to the bounce. Read more
We’ve been harping on for a while now about how a scarcity of quality collateral in the market (read US Treasuries) has been wreaking havoc in the repo markets — and how QE-related large scale asset purchases have only added to the problem.
We’ve noted too that these factors require a major investor rethink when it comes to how funding markets operate, and also in how to interpret the Treasury yield curve. Read more
The yield on benchmark US Treasury 10-year notes approached the lowest level for six decades as bond traders grew increasingly confident that slumping equities and the eurozone debt crisis would compel the Federal Reserve to enact a new programme of bond purchases later this month, the FT reports. The yield on 10-year notes touched 1.91 per cent on Tuesday, just above the low of 1.9 per cent set in 1950 according to Barclays’ Equity Gilt study. Mounting concerns about the outlook for the US economy, particularly on the jobs front, have heightened expectations that the central bank will sell short-term Treasuries, or allow them to mature, and use the proceeds to buy long-term paper – a policy dubbed “Operation Twist” as it narrows the difference between short- and long- dated yields. Strategists and traders have for some weeks debated the merits of the Fed implementing a version of the original Operation Twist, which was tried back in the 1960s during the Kennedy administration. The 10-year Treasury yield determines US mortgage and corporate borrowing rates and a sustained period of low interest rates is seen as helping to boost the economy. In recent weeks, the difference between two- and 10-year yields has moved to its flattest level since March 2009. The yield curve now stands at 1.77 percentage points, in from 2.36 percentage points at the start of August. Read more
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