July 21. Low rates as far as the eye can see

–Rates continued to drift lower Friday with tens closing just under 2.5%.  Japan’s election solidifies support for Abe and yen depreciation.
–Detroit’s bankruptcy and Chicago’s downgrade (‘we got your back Detroit, right behind ya’) focuses attention on unfunded liabilities. “Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities.”  It’s worth keeping in mind, and not lost on the Fed, that entrenched politicians would rather inflate away these crushing burdens rather than face them, and nowhere is that more obvious than in Illinois.
–In a broader perspective, there seems to be a plethora (that’s right, PLETHORA) of market dislocations recently that I’m sure are related but I can’t quite connect.  For example, the extreme premium of near contracts in WTI crude, negative gold forward rates, fails in the treasury market (and ZH noted similar problems in Japan), top line revenue misses in earnings reports. It’s not apparent in the euro$ curve, but I get a sense that short term financing is getting gummed up.  It might be that another big dollop of Japanese QE will mask underlying problems, but I have an uneasy sense that funding is getting a little more precious. And municipal finance in the US could be another signal.  (Like a frying pan across the forehead).  Banks need more capital, and it’s not just due to Basel rules.  The WSJ ran this headline: ‘Beijing Lending Shift May Force Banks to Raise Capital’.  The Fed, of course, is simply a LONG way from raising rates.
–Here are a couple of links and quotes regarding Detroit, Chicago, etc.
“As examples of the results: Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates.”
“Last Monday, the bond rating house Moody’s also downgraded Cincinnati’s general obligation bonds, citing “budgetary pressure” from pension contributions.”
–And this isn’t exactly market related, but I am including it anyway to add a little perspective to the Trayvon Martin protests.  Chicago had at least 4 dead and 11 wounded in shootings, including a six year old girl and 14 year old boy; most were between 20 and 29.  We call it “the weekend” and it’s a travesty.  Maybe Stevie Wonder should consider adding Chicago as well as Florida to his “do not perform” list.  Maybe Chris Matthews should apologize on behalf of everyone everywhere.  I don’t mean to diminish Obama’s comments on this topic, which I would say were of historical importance. http://www.businessinsider.com/obama-trayvon-martin-race-speech-video-text-2013-7  However, the nation faces a mountain of related problems that need to be addressed as well.  http://www.chicagotribune.com/news/local/breaking/chi-chicago-shootings-violence-july-20-to-21-20130720,0,110934.story

Posted on July 21, 2013 at 6:47 pm by alexmanzara · Permalink
In: Eurodollar Options

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