June 15. In a turn of events no one could have predicted, Greek debt talks hit a snag.
June 15. In a turn of events no one could have predicted, Greek debt talks hit a snag. Moody’s warned French banks on exposure to Greek debt. Glencore says demand is slowing in China (FT).
–US fixed income pulled back from recent gains, with ten year note jumping to 3.10%. Curve was steeper with 2/10 out about 6 bps. Implied vol in treasuries was very well bid from the open and closed at new recent highs. There was a notable buyer of about 60k TYQ 126/127c spreads (new position) for 6/64 down to 4/64.
–In eurodollars there was a large seller of EDH2/EDM2 spread mostly at 11.0 (settled 12). Interestingly open interest was down quite a bit in first 4 euro$ contracts according to prelim sheets. EDU1 -26k, EDZ -18k, EDH -20k and EDM2 -15k. No conclusions to draw, though there was a bit of a rebound in one-year calendar spreads, for example EDZ1/EDZ2 +6.5 to 60.0.
–POMO today $4-5 billion in 5 year area. CPI expected 0.0 with Core +0.2%. Empire State 14.0 expected from 11.9. Industrial Production +0.2 expected (from flat) with Capacity 77.0.
June 14. S&P cut the credit rating of Greece to CCC, worst in the world.
June 14. S&P cut the credit rating of Greece to CCC, worst in the world. ESU promptly made a new low but quickly bounced. Illinois, wondering what it has to do to get noticed by the rating agencies, is considering corporate ads on license plates.
–China again increased bank reserve ratio as inflation rose to 5.5.
–Today’s news includes PPI expected +0.1 from +0.8, with Core expected +0.2. Retail Sales expected -0.3%, but +0.3 ex-autos. Bernanke speaks on debt ceiling in the afternoon.
–Only $2.5-$3.5 billion POMO today in 1-2 year, but tomorrow and Thursday $8-10 billion 5 yr part of curve.
June 13. 2010.
June 13. 2010. Stocks remain under pressure, closing at the lowest level in 2 1/2 months, although a late announcement that the Basel capital charge requirement might be reduced from 3% to 2.5% caused a reversal in bank stocks. BAC and JPM were both at new lows prior to the news, ended with outside days and higher closes. From FT: “US equity outflows are largest in ten months.” In terms of stocks, moves by central banks to relax pressure on “commercial” banks appear to have less and less of a catalyst effect.
–“The debt level of the USA is disastrous,” Mr. Juncker said. “The real problem is that no one can explain well why the euro zone is in the epicenter of a global financial challenge at a moment, at which the fundamental indicators of the euro zone are substantially better than those of the U.S. or Japanese economy.” I think I can take a stab at it…it’s because the assets held at the ECB and throughout your banking system are of dubious value, perhaps even more than in the US.
–Juncker omitted China, where the latest data show decreased lending, expected 650rmb actually 552. Also, an item on ZH notes that while the press trumpets US deleveraging, total consumer and mortgage debt have declined by about $1T, about the same amount that has been WRITTEN OFF by banks.
–No data today…another day nearer to end of QE2.
June 10,
June 10, No real news today on economy. CNN Money says US debt to GDP will surpass 100% (to 102) this year.
–June midcurve options expire today.
–In summer of 2007, two Bear Stearns mortgage funds collapsed. I believe the first news was in June that there were liquidity problems; didn’t seem hugely significant. By July 18, “Bear Stearns reportedly sent out a letter informing investors in their mortgage hedge funds that they might suffer total loss.” It was sort of a beginning point for the crisis. Well, there is a story on ZeroHedge today that starts: “Something quite disturbing happened during today’s latest attempt by the Fed to sell $3.8 billion in face amount of Maiden Lane 2 assets: it had a busted dutch auction. In fact, the auction was so massively busted, the New York Fed managed to sell only half of the bonds for sale, or $1.898 billion in 36 Cusips of the total 73 Cusips offered for sale.” This is the portfolio that AIG was going to buy whole, instead being sold piecemeal. Once again it might be a signal that market players are going to hoard liquidity.
http://www.zerohedge.com/
–Another story which creates back of the mind uneasiness concerns wild swings in the NatGas July contract yesterday, apparently an algo gone bad. A big part of our economy depends of smooth liquid markets, that are now mostly computer driven….
June 9. New lows in all eurodollar calendar spreads.
June 9. New lows in all eurodollar calendar spreads. Red/green pack spread fell a whopping 7 bps to only 88.5. Ten year note fell to 2.93/94 before ending the day 2.96. Two year note below 40bps. There is still continuous buying of out of the money green calls…9875 thru 9900 as green pack trades 98.29. One month ago on May 10, EDZ1/EDZ2 was 101. Yesterday it closed 52.5, down 6 bps, 14 consecutive lower settles, (yet there’s surprise and consternation that DJIA has gone down 6 days in a row).
–Yesterday oil surged as the OPEC meeting broke up without an increase in production…news story suggested the group was in “disarray”. Meredith Whitney was on CBNC maintaining her call of fiscal hardship at state and local levels leading to bankruptcies and broken contracts. Ten year note auction was eagerly bought even at these paltry sub-3% yield levels. Beige book noted some areas slowing, some growing. Chgo Trib reports CME may move corporate headqtrs from Illinois due to taxation. Every large firm knows it can wring preferential treatment by threatening to leave, leaving smaller companies to shoulder the burden of bad state mgmt.
–Today’s news includes Trade balance expected -49.0 B. Job claims +418k. Trichet to warn of rate increases? 30-yr bond auction. The Obama team is considering a payroll tax break and other measures to spur the economy. CNN Money says US debt to GDP will surpass 100% (to 102) this year.
June 8.
June 8. Treasuries were well bid going into the three year auction, and the strength continued into the close. Bernanke’s speech caused new highs (on the day) in TYU to 123-165. The first headline I saw concerning Bernanke’s remarks was that central bank accommodation is still needed. A downbeat assessment of the economy took stocks lower, with ESM falling to a new low, from around 1290 to 1282.50. Goldman suggested central bank inaction after the speech, harkening back to the “Seven Faces of Peril” paper put out by Bullard last year that warns of an impotent central bank at very low (zero) short term rates. [this paper recommended higher FF with more bond buying] http://research.stlouisfed.
–Today’s news includes ten year auction and Beige Book.
–Red/gold pack spread moved to a new recent high in front of longer maturity auctions, up a little over 1 bp to 280.5. New lows in near calendars again. Dec/Dec now only 58.5, down 2.5 on the day.
–There were a couple of 30k block trades on NYSE-Liffe yesterday…one early in EDU2 9922.5, and one late (after floor close) in EDU1 9966.5. Doesn’t appear to be migration from CME open interest, but difficult to say.
–Also a rare trade in blue midcurve options. Buyer of 4k E3M 9750c (EDU4 underlying) vs Sell E2U 9850c (EDU3 underlying) for 1 bp. Difference between strikes 100 bps. On its own this trade would suggest flattening.
June 7.
June 7. The curve was slightly steeper as the short end continued to rally in spite of today’s upcoming 3 year auction. Red/gold pack spread edged up 1.125 bp while 2/10 was up 2 to 258. Ten and thirty year bond auctions on Wed and Thursday. Perhaps a bp or 2 of concession from 3%??
–Bernanke is scheduled to give an IMF speech this afternoon at 3:45 EST. The market will look for clues regarding QE extension.
–Once again heavy calendar spread selling in eurodollars with new lows made in near spreads. Dec/Dec -2.5 to 61.0. Late in the day there was some notable put buying (in an otherwise quiet session). For example there was a buyer of 10k EDU1 and EDZ1 9950p as a package for 6.5. Also there was a pit and screen buyer of about 6k E2M 9837.5p for 1.0…expires this Friday…14.5 out of the money.
–Stocks were weak, and some high fliers succumbed to general market conditions. Netflix (NFLX) had a key reversal, making a new high for the move early, but ending down 4% on a big range. Apple (AAPL) likewise had an outside day, up early in anticipation of Steve Jobs appearance at a software developers conference, but ultimately ending the day -1.6%. BofA, a decidedly low flier, closed down 4%, the lowest close in two years, and Citi fell 4.5%, working tirelessly towards another reverse split.
June 6. Bad employment data sparked a rally in bonds and losses for stocks.
June 6. Bad employment data sparked a rally in bonds and losses for stocks. QE2 was supposed to help the economy by propping up asset prices as yields would fall at the longer end of the curve. Well, you can’t ask for much more than a ten year note at only 2.99%, yet stocks, which Bernanke has cited as a success of the program, are [perhaps] giving up the ghost. And housing, which had a short lived bounce related to tax credits, barely responds to low rates at this point. The Keynesian prescription of gov’t spending is seemingly being overwhelmed by fear of bad policies, and concern that austerity is not just for peripheral Europe anymore.
–New lows in many of the one-year calendar spreads once again. Dec/Dec was as high as 93 on May 18, now just 63.5, -3.5 on the day. EDH2 9962 straddle was sold at 23.5 to 23.0….WITH 288 DAYS UNTIL EXPIRATION! Can it stay bad that long?
–I saw a couple of intersting items as I was scanning internet sites, one on the Huffington Post and one on Drudge Report. Drudge was about a planned protest at a U2 concert (in the UK) by Art Uncut, because the band (and Bono) doesn’t pay their fair share of taxes. The other concerns Apple, facing protests for the same reason by a group US Uncut… I suppose part of the same organization. When people are forced to give up some of what they perceive as their right (in terms of gov’t largesse) they search for whatever target can be found. To a hammer, everything obstacle looks like a nail.
June 2. Yields continue to press lower.
June 3. Nonfarm payrolls today. Expectations have been cut by several firms in light of other weak data; a number around 140-150k now seems to be in the ballpark. Given lowered expectations and the strong rally we have already had in fixed income, a move to much lower rates doesn’t seem likely. However, recent stock market jitters and renewed scrutiny of financial firms will put a floor under bonds.
–In news yesterday: Groupon prepares for IPO. Goldman Subpoenaed Over Senate Report (leading to further weakness in financials). And from BBG: Moody’s Investors Service said it will put the U.S. government’s Aaa credit rating under review for a downgrade unless there’s progress on increasing the debt limit by mid-July. It’s somewhat ironic that as ratings agencies have cut various country debt ratings, the IMF, (which gets 17% of funding from the US), recommends austerity measures. Yet in the US, austerity typically means slowing the pace of increase of gov’t programs. And the US itself can’t seem to find agreement on any meaningful true cuts. In the short term, reduced gov’t means less growth.
June 2. Yields continue to press lower. Two year now at only 44 bps…in late 2008 it had gotten to 68 before bouncing. The lowest level in Oct 2010 was 33-34 bps. Ten year now solidly below 3% at 2.97. ADP was weak. ISM weaker than expected. Today’s news includes Jobless Claims expected at 420k.
–All near eurodollar one year calendars made new lows. No one-yr spread is above 100 bps. Dec/Dec down another 6.5 to 64.5. Red Dec/Grn Dec was sold Tuesday at 100.5 on block trade; yesterday another block of 5k sold at 94.
–Stocks slid as the specter of economic weakness overwhelms the benefits of constant liquidity. Just a few days ago the Linked In IPO was being hailed as a sign of strength in the tech market, yesterday it fell 5% to 77.45…about 35% below the high print.
–Eurodollar vol was hit, but bond vol was bid. Suggests further flattening as the front end of the curve approaches the zero boundary, while the back end is perceived as having room to run. Another Moody’s downgrade of Greece, which represents even odds of default, is another factor helping to drive treasuries higher.
–Interesting story on Reuters that China is absorbing some of the bad debts of local governments and forcing banks to take some losses. Just a matter of time before the US does the same, (without banks taking any hit, however)… (Reuters) – China’s regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world’s second-biggest economy.
http://www.reuters.com/
June 1. Economic data continues to disappoint.
June 1. Economic data continues to disappoint. Chicago PMI was expected 62 but came in 56.6. Consumer Confidence was 60.8 vs expected 66.5 and Dallas Fed was -7.4 vs expected 8.5. Today’s news includes ADP data and National ISM, expected 57.5 vs 60.4 last. A new rescue package for Greece was cited for equity market strength, but perhaps as important is the perception of endless liquidity measures to disguise underlying imbalances.
–Eurodollar calendar spreads made new lows as yields fell. Red/green pack spread closed just below 100 bps. EDZ1/Z2 (Dec/Dec) closed down 3.5 to new low of 71. New seller yesterday of 10k EDZ2/EDZ3 on block trade at 100.5. As EDM1 nears expiration, June/June is only 38 bps. Ten year treasury yield fell to 3.05%.
–The house voted against a debt ceiling increase.
–(Reuters) As much of a quarter of the recent decline in the U.S. jobless rate is due to long-term unemployment benefits running out, according to research from the Chicago Federal Reserve Bank published on Tuesday.
