Sept 11. Economic data doesn’t seem to justify 3% tens…
–Interest rate futures slipped lower Tuesday, with ten year yield rising 6 bps to 2.96. Curve steepened with 2/10 up 3 to just over 249. A reduction in tensions concerning Syria removed some of the safety bid, and treasury supply of tens today and 30’s tomorrow also weighed on the market. Verizon deal is also in the mix, with reports of $100 billion in orders for the expected $49b multi tranche sale. According to WSJ, “The demand for the debt has surprised even the banks selling the bonds…”
–NFIB small business optimism index improved marginally though the report said the survey indicates the economy is “going nowhere.” JOLTS data also paints a tepid picture of the economy. And on the home page of the Fed’s website there is a graph of the growth rate of total bank credit, in constant decline from Q4 2011 until now, with current level of only 0.9%. http://www.federalreserve.gov/
–Headline on FT says “BOJ warns of need for wage increases”. Dollar/yen appears to be breaking out to the upside of a large triangle and is now again above 100. (target around 110). While the devaluation of the yen has raised domestic inflation, increasing prices (for energy for example), presents a problem without corresponding wage gains. JGB 10’s continue to yield just 72 bps. And of course the weaker yen means Japan is exporting deflation…
–An item on Bloomberg notes that cities in Michigan are having trouble tapping the muni bond market due to Detroit’s issues. In a related story, Puerto Rico GO bonds maturing in 2040 traded to yield over 10%…”The average yield was almost five percentage points above benchmark munis.” The Illinois Policy Institute notes that unpaid bills in the state are expected to hit $8.1 billion in Q3, up from about $6 billion 2 1/2 years ago and that “Illinois is required by law to pay interest of 1% a month on its unpaid bills, also called invoices, when they become more than 90 days old…” In today’s world of financial engineering, a plan presents itself: Have Puerto Rico issue 10% 30 year munis, lend the proceeds to Illinois at 11%, and Illinois can pay off its old bills while saving 1% in financing costs…
