May 7. US bonds and stocks lower this morning…
From a Reuters article: “I would highlight that equity market valuations at this point generally are quite high,” Yellen said. “There are potential dangers there.”
“We’ve also seen the compression of spreads on high-yield debt, which certainly looks like a reach for yield type of behavior,” Yellen said.
From another Reuters piece this morning: The Federal Reserve is sketching out plans to prevent an abrupt contraction in its massive balance sheet next year, when some $500 billion in bonds expire and risk disrupting markets and the U.S. economic recovery.
From Business Insider citing Morgan Stanley…the possibility of a TRIPLE taper tantrum:
If growth and inflation improve in both the euro area and Japan the way our economics teams expect them to, we expect a triple taper through:
i) Disinvestment of the MBS portfolio by the Fed some time in 1H16 (3-6 months after we expect the first rate hike in December 2015);
ii) A tapering of QE purchases in the euro area in 2H16; and
iii) A tapering of QE purchases in Japan in 2H16.
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Big moves overnight with the Bund yield at 64 bps, JGB at 43 (up 8) and US tens 228, now through the previous high yield of the year, set on the March employment release, or 224. In the US both bonds and stocks trading lower this morning. Markets globally feeling shaky, “the Shanghai Composite lost 2.7 percent, extending a three-day loss to 8.1 percent, the worst three-day performance in almost two years.”
Yesterday we saw slight new highs in the curve with red/gold eurodollar pack spread up 2.25 bps to 135.25. 2/10 treasury spread up 5.5 to 160.7. Implied vol still firming. Job Claims this morning expected 280 k.
