April 11. Risk off everywhere….
–Ten year note yield fell below 2% to 1.99 in spite of supply this week, with 10’s auctioned today and 30’s tomorrow. 2/10 treasury spread made a new recent low of 170, down 3. (Has been as high as 200 this year). Everything about yesterday was “risk-off” as Italy and Spain yields rose with ten yr of 5.67 and 5.96 respectively, Spain up 100 bps in a month. SPX -1.7% in US.
–All of the liquidity driven rallies from the beginning of the year are showing signs of cracking. For example, the emerging mkt index EEM, which rose about 23% in the first month and a half of the year, has given about 40% of that move back. Copper has now broken the lower bound of its 2 month range, closing at 366, (has given away half the gain from 2012 rally). EUR/JPY which had tried to crack 106 early Monday only to rally back above 107, was 105.65 late. Even as Kocherlakota suggested rates might have to rise sooner rather than later, euro$ calendar spreads made new lows, with EDZ12/Z13 down 2 to only 14 bps (it had been up to 36 in mid-March). Even the gold turnaround rally yesterday is suggestive of flight to safety with the renewed flare-up of the eurozone crisis. German 2 yr Schatz yield hit only 9 bps. Euroswiss contracts rejected the quaint notion of positive rates, climbing back above par, with Sept 100.08.
–The most pain will ensue if treasuries continue to rally; there are still bad positions lingering from before the employment data… However, implied vol is still low and edged down yesterday…no sense of panic.
–Today’s news includes ten year auction and Fed’s Beige Book.
–From a Bloomberg article yesterday about the Illinois Teachers Retirement System:
The teachers’ fund is one of the country’s worst-financed
statewide pension systems, reporting that it is only 47 percent
funded. And that’s if you buy the system’s rosy accounting
assumptions, including that it will achieve 8.5 percent annual
returns on its assets. This level is tied for the most
aggressive investment assumption among state pension funds in
the country, and the fund has had to get creative in an effort
to meet it. Pensions & Investments magazine says it has the
fourth-riskiest pension investment portfolio in the U.S., with
less than 17 percent of its investments in fixed income and
cash.
