The Liberty Street Economics blog of the Federal Reserve Bank of New York provided a good analysis this week of the summer’s UST settlement fails spike.
For those unfamiliar, settlement fails in US Treasury securities rose to their highest level in more than five years in June, with DTCC figures reaching more than $1.2 trillion in gross fails for the month:
Tech is down, Treasuries are up, stocks are flattish: whatever happened to asset rotation, great or otherwise?
For an answer, we turn to the flows as interpreted by Nikolaos Panigirtzoglou and team at JP Morgan, who have found that the bond selling of late last year has reversed:
non-bank investors appear to be responsible for most of this year’s bond rally of which retail investors were one. Neither speculative investors, who appeared to have increased their US rate shorts by $110bn duration-weighted YTD, nor banks who, driven by FX managers, sold USTs this year, appear to have caused this year’s bond rally.
Gold has been rising steadily since the start of the year.
Given the US taper, this might seem counterintuitive, especially if you believe that “money printing” should always justify higher gold prices.
But, as usual, everything is relative. Read more
The interesting thing about this year’s US government shutdown/debt ceiling fiasco was the extent to which markets chose to ignore the chaos in Washington. Indeed, taper tantrum proved much more destabilising then the system’s brief flirtation with a self-made US default. (Perhaps because it was clear from the onset the bluff was not executable?)
Now that the threat is behind us (until next time), there is also a general perception that we got away from the episode relatively unscathed.
Alas, it was not necessarily so. Collateral markets did wobble. Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Over the past few years some quarters of the financial commentariat have taken to describing the Federal Reserve’s asset purchases as the monetisation of US national debt, something which has given rise to all sorts of misguided fears about inflation and much else.
While the Fed certainly have been purchasing extensive amounts of government debt in the secondary markets it is perhaps misleading to assume that these markets would not otherwise be buoyant without such intervention. Read more
It’s seriously pronounced. While in absolute terms the US 10 year benchmark is simply back at summer 2011 levels, the pace of deterioration since the beginning of May has not been seen in recent decades. Over the past week alone, yields have leaped 30 basis points. Read more
Bernanke’s last Humphrey-Hawkins speech has been pre-released (and his live testimony was due to begin at pixel time). Most analysts are noting the return of dovish sentiment, not to mention the explicit re-emergence of the “D” word: Read more
Treasuries exhibited some relatively sharp moves yesterday, with 10-year yields reaching 2.19 per cent this morning:
In the bigger picture… maybe not quite a dramatic QExit-related panic: Read more
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 US Treasury 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
Or if you prefer the US Treasury Department-ese version:
Based on the analysis in this report, Treasury has concluded that no major trading partner of the United States met the standards identified in Section 3004 of the Act during the period covered in the Report. 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
Earlier this week Paul Krugman went out of his way to point out that if China stopped buying US bonds, it wouldn’t be the end of the world.
We wanted to come back to some of his points, because well, we think they are pretty good. 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.
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.
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.